10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019

OR

¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from: __________to __________

Commission File Number 000-52611

IMH FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	27-1537126
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7001 N. Scottsdale Rd #2050

Scottsdale, Arizona 85253

(Address of principal executive offices and zip code)

(480) 840-8400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No þ

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock

Class B-1 Common Stock

Class B-2 Common Stock

Class B-3 Common Stock

Class B-4 Common Stock

Class C Common Stock

As of November 14, 2019, the registrant had outstanding the following classes and series of stock: (i) 1,909,338 shares of Common Stock, (ii) 3,376,682 shares of Class B-1 Common Stock, (iii) 3,377,814 shares of Class B-2 Common Stock, (iv) 6,912,232 shares of Class B-3 Common Stock, (v) 313,790 shares of Class B-4 Common Stock, (vi) 668,903 shares of Class C Common Stock, (vii) 2,604,852 shares of Series B-1 Cumulative Convertible Preferred Stock, (viii) 5,595,148 shares Series B-2 Cumulative Convertible Preferred Stock, (ix) 2,352,941 shares of Series B-3 Cumulative Convertible Preferred Stock, (x) 1,875,000 shares of Series B-4 Cumulative Convertible Preferred Stock and (xi) 22,000 shares of Series A Preferred Stock. There is no established market for the registrant’s shares of common stock or preferred stock.

IMH Financial Corporation

September 30, 2019 Form 10-Q Quarterly Report

Index

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	F-1
	Unaudited Condensed Consolidated Balance Sheet as of September 30, 2019 and Consolidated Balance Sheet as of December 31, 2018	F-2
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	F-3
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	F-4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	F-8
	Notes to Unaudited Condensed Consolidated Financial Statements	F-10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	F-39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	F-55
Item 4.	Controls and Procedures	F-55
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	F-57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	F-57
Item 3.	Defaults Upon Senior Securities	F-57
Item 4.	Mine Safety Disclosures	F-57
Item 5.	Other Information	F-57
Item 6.	Exhibits	F-58
Signatures		F-59

2

PART I

ITEM 1.     FINANCIAL STATEMENTS

F-1

IMH FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30,			December 31,
	2019			2018
Assets	(unaudited)
Cash and cash equivalents	$	7,447		$	25,452
Funds held by lender and restricted cash	3,729			198
Mortgage loans, net	11,714			23,234
Real estate held for sale	7,400			7,418
Operating properties, net	65,102			33,866
Other real estate owned	33,300			33,727
Goodwill	15,357			15,357
Other intangibles, net	431			641
Other receivables	1,253			1,320
Investment in unconsolidated entities	2,612			—
Other assets	3,882			2,033
Property and equipment, net	332			393
Total assets	$	152,559		$	143,639
Liabilities
Accounts payable and accrued expenses	$	9,530		$	8,385
Accrued property taxes	979			305
Dividends payable	1,517			857
Accrued interest	537			653
Customer deposits and funds held for others	1,936			552
Notes payable, net of deferred financing fees	52,164			36,314
Total liabilities	66,663			47,066
Series B Redeemable convertible preferred stock, $.01 par value; 100,000,000 total preferred shares authorized; 12,427,941 shares issued and outstanding as of September 30, 2019 and 10,552,941 as of December 31, 2018; liquidation preference of $59,870 as of September 30, 2019 and $51,170 as of December 31, 2018.	54,028			45,663
Series A redeemable preferred stock, 22,000 issued and outstanding; liquidation preference of $22,000 at September 30, 2019 and December 31, 2018	21,790			21,747
Commitments and contingencies (Note 13)
Stockholders' Equity
Common stock, $.01 par value; 200,000,000 shares authorized; 18,929,496 and 18,596,774 shares issued at September 30, 2019 and December 31, 2018, respectively; 16,559,315 and 16,726,610 shares outstanding at September 30, 2019 and December 31, 2018, respectively	189			186
Less: Treasury stock, at cost, 2,370,181 and 1,870,164 shares at September 30, 2019 and December 31, 2018, respectively	(7,286		)	(6,286		)
Paid-in capital	703,813			708,523
Accumulated deficit	(710,885		)	(692,876		)
Total IMH Financial Corporation stockholders' equity (deficit)	(14,169		)	9,547
Non-controlling interests	24,247			19,616
Total stockholders' equity	10,078			29,163
Total liabilities and stockholders’ equity	$	152,559		$	143,639

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-2

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues
Operating property revenue	$	4,082		$	2,085		$	6,195		$	5,753
Mortgage loan income, net	340			709			1,438			1,976
Management fees, investment and other income	129			32			486			323
Total revenue	4,551			2,826			8,119			8,052
Operating Expenses
Operating property direct expenses (exclusive of interest and depreciation)	4,703			2,364			10,710			6,699
Expenses for non-operating real estate owned	72			151			246			519
Professional fees	1,185			1,125			3,671			2,754
General and administrative expenses	2,463			1,788			5,928			5,376
Interest expense	427			775			1,218			2,300
Depreciation and amortization expense	879			281			1,470			925
Total operating expenses	9,729			6,484			23,243			18,573
Provision for Credit Losses, Impairment, Gain Disposal of Assets, and Other
Gain on disposal of assets	(223		)	(3,543		)	(244		)	(3,938		)
Provision for (recovery of) credit losses, net	2,598			—			1,463			(175		)
Unrealized loss on derivatives	39			—			330			—
Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other	2,414			(3,543		)	1,549			(4,113		)
Total costs and expenses	12,143			2,941			24,792			14,460
Loss before provision for income tax	(7,592		)	(115		)	(16,673		)	(6,408		)
Income tax provision	—			—			—			—
Net Loss	(7,592		)	(115		)	(16,673		)	(6,408		)
Net (income) loss attributable to non-controlling interests	(893		)	(1,105		)	(1,334		)	(990		)
Cash dividends on Series B redeemable convertible preferred stock	(1,320		)	(655		)	(2,609		)	(1,894		)
Deemed dividend on Series B redeemable convertible preferred stock	(366		)	(920		)	(2,255		)	(2,651		)
Cash dividends on Series A redeemable preferred stock	(422		)	(422		)	(1,251		)	(569		)
Net Loss attributable to common shareholders	$	(10,593	)	$	(3,217	)	$	(24,122	)	$	(12,512	)
Net Loss per common share
Basic and Diluted	$	(0.64	)	$	(0.19	)	$	(1.47	)	$	(0.75	)
Weighted average common shares outstanding - basic and diluted	16,525,282			16,726,610			16,431,448			16,696,201

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-3

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data) 

	Three and Nine Months Ended September 30, 2019
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount			Paid-in Capital			Accumulated deficit			Total IMH Financial Corporation Stockholders' Equity (Deficit)			Non-controlling Interest			Total Stockholders' Equity
Balance at December 31, 2018	18,596,774	$	186	1,870,164	$	(6,286	)	$	708,523		$	(692,876	)	$	9,547		$	19,616		$	29,163
Net income (loss)	—	—		—	—			—			(5,136		)	(5,136		)	123			(5,013		)
Contributions from Hotel Fund investors	—	—		—	—			—			—			—			3,520			3,520
Distributions to Hotel Fund investors	—	—		—	—			—			—			—			(266		)	(266		)
Hotel Fund syndication costs	—	—		—	—			(12		)	—			(12		)	—			(12		)
Stock warrant and equity cost accretion	—	—		—	—			(70		)	—			(70		)	—			(70		)
Cash dividends on Series B redeemable convertible preferred stock	—	—		—	—			(641		)	—			(641		)	—			(641		)
Deemed dividend on Series B redeemable convertible preferred stock	—	—		—	—			(936		)	—			(936		)	—			(936		)
Cash dividends on Series A redeemable preferred stock	—	—		—	—			(412		)	—			(412		)	—			(412		)
Stock-based compensation	112,304	1		—	—			116			—			117			—			117
Treasury stock repurchase	—	—		500,000	(1,000		)	—			—			(1,000		)	—			(1,000		)
Balance at March 31, 2019	18,709,078	187		2,370,164	(7,286		)	706,568			(698,012		)	1,457			22,993			24,450
Net income (loss)	—	—		—	—			—			(4,388		)	(4,388		)	318			(4,070		)
Contributions from Hotel Fund investors	—	—		—	—			—			—			—			3,998			3,998
Distributions to Hotel Fund investors	—	—		—	—			—			—			—			(344		)	(344		)
Hotel Fund syndication costs	—	—		—	—			(36		)	—			(36		)	—			(36		)
Stock warrant and equity cost accretion	—	—		—	—			(31		)	—			(31		)	—			(31		)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-4

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data) 

	Three and Nine Months Ended September 30, 2019
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount			Paid-in Capital			Accumulated deficit			Total IMH Financial Corporation Stockholders' Equity (Deficit)			Non-controlling Interest			Total Stockholders' Equity
Cash dividends on Series B redeemable convertible preferred stock	—	—		—	—			(648		)	—			(648		)	—			(648		)
Deemed dividend on Series B redeemable convertible preferred stock	—	—		—	—			(954		)	—			(954		)	—			(954		)
Cash dividends on Series A redeemable preferred stock	—	—		—	—			(417		)	—			(417		)	—			(417		)
Stock-based compensation	83,734	1		—	—			75			—			76			—			76
Balance at June 30, 2019	18,792,812	$	188	2,370,164	$	(7,286	)	$	704,557		$	(702,400	)	$	(4,941	)	$	26,965		$	22,024
Net income (loss)	—	—		—	—			—			(8,485		)	(8,485		)	893			(7,592		)
Reclassification of profit participation to liability	—	—		—	—			—			—			—			(463		)	(463		)
Acquisition of non-controlling interests	—	—		—	—			1,146			—			1,146			(2,753		)	(1,607		)
Distributions to Hotel Fund investors	—	—		—	—			—			—			—			(395		)	(395		)
Stock warrant and equity cost accretion	—	—		—	—			(52		)	—			(52		)	—			(52		)
Cash dividends on Series B redeemable convertible preferred stock	—	—		—	—			(1,320		)	—			(1,320		)	—			(1,320		)
Deemed dividend on Series B redeemable convertible preferred stock	—	—		—	—			(366		)	—			(366		)	—			(366		)
Cash dividends on Series A redeemable preferred stock	—	—		—	—			(422		)	—			(422		)	—			(422		)
Stock-based compensation	136,684	1		—	—			270			—			271			—			271
Relinquishment of treasury stock	—	—		17	—			—			—			—			—			—
Balance at September 30, 2019	18,929,496	$	189	2,370,181	$	(7,286	)	$	703,813		$	(710,885	)	$	(14,169	)	$	24,247		$	10,078

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-5

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data) 

	Three and Nine Months Ended September 30, 2018
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount			Paid-in Capital			Accumulated deficit			Total IMH Financial Corporation Stockholders' Equity			Non-controlling Interest			Total Stockholders' Equity
Balance at December 31, 2017	18,079,522	$	181	1,826,096	$	(6,286	)	$	714,889		$	(679,535	)	$	29,249		$	6,562		$	35,811
Net loss	—	—		—	—			—			(3,704		)	(3,704		)	(90		)	(3,794		)
Contributions from Hotel Fund investors	—	—		—	—			—			—			—			3,485			3,485
Distributions to Hotel Fund investors	—	—		—	—			—			—			—			(20		)	(20		)
Hotel Fund syndication costs	—	—		—	—			(51		)	—			(51		)	—			(51		)
Issuance of common stock warrants	—	—		—	—			688			—			688			—			688
Cash dividends on Series B redeemable convertible preferred stock	—	—		—	—			(592		)	—			(592		)	—			(592		)
Deemed dividend on Series B redeemable convertible preferred stock	—	—		—	—			(817		)	—			(817		)	—			(817		)
Stock-based compensation	438,161	4		—	—			96			—			100			—			100
Balance at March 31, 2018	18,517,683	185		1,826,096	(6,286		)	714,213			(683,239		)	24,873			9,937			34,810
Net loss	—	—		—	—			—			(2,474		)	(2,474		)	(25		)	(2,499		)
Contributions from Hotel Fund investors	—	—		—	—			—			—			—			1,335			1,335
Distributions to Hotel Fund investors	—	—		—	—			—			—			—			(80		)	(80		)
Hotel Fund syndication costs	—	—		—	—			(35		)	—			(35		)	—			(35		)
Cash dividends on Series B redeemable convertible preferred stock	—	—		—	—			(647		)	—			(647		)	—			(647		)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-6

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data) 

	Three and Nine Months Ended September 30, 2018
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount			Paid-in Capital			Accumulated deficit			Total IMH Financial Corporation Stockholders' Equity			Non-controlling Interest			Total Stockholders' Equity
Deemed dividend on Series B redeemable convertible preferred stock	—	—		—	—			(914		)	—			(914		)	—			(914		)
Cash dividends on Series A redeemable preferred stock	—	—		—	—			(142		)	—			(142		)	—			(142		)
Stock-based compensation	79,091	—		—	—			77			—			77			—			77
Relinquishment of Class C common stock to treasury	—	—		44,068	—			—			—			—			—			—
Balance at June 30, 2018	18,596,774	$	185	1,870,164	$	(6,286	)	$	712,552		$	(685,713	)	$	20,738		$	11,167		$	31,905
Net loss	—	—		—	—			—			(1,220		)	(1,220		)	1,105			(115		)
Contributions from Hotel Fund investors	—	—		—	—			—			—			—			4,995			4,995
Distributions to Hotel Fund investors	—	—		—	—			—			—			—			(105		)	(105		)
Hotel Fund syndication costs	—	—		—	—			(1		)	—			(1		)	—			(1		)
Cash dividends on Series B redeemable convertible preferred stock	—	—		—	—			(655		)	—			(655		)	—			(655		)
Profit participation distribution to non-controlling interests	—	—		—	—			—			—			—			(1,939		)	(1,939		)
Issuance of common stock warrants, net of cost accretion	—	—		—	—			(107		)	—			(107		)	—			(107		)
Deemed dividend on Series B redeemable convertible preferred stock	—	—		—	—			(920		)	—			(920		)	—			(920		)
Cash dividends on Series A redeemable preferred stock	—	—		—	—			(427		)	—			(427		)	—			(427		)
Stock-based compensation	—	1		—	—			130			—			131			—			131
Balance at September 30, 2018	18,596,774	$	186	1,870,164	$	(6,286	)	$	710,572		$	(686,933	)	$	17,539		$	15,223		$	32,762

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-7

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(16,673	)	$	(6,408	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation and option amortization	464			308
Gain on disposal of assets	(244		)	(3,938		)
Amortization of deferred financing costs	123			87
Depreciation and amortization expense	1,470			925
Accretion of mortgage income	(55		)	(323		)
Accretion of discount on note payable	263			705
Non-cash interest expense funded by loan draw	1,122			811
Non-cash provision for (recovery of) credit losses	2,598			—
Unrealized loss on derivatives	330			—
Changes in operating assets and liabilities, net of business combination:
Accrued interest receivable	318			12
Other receivables	(179		)	(360		)
Other assets	(2,179		)	78
Accrued property taxes	674			111
Accounts payable and accrued expenses	(1,454		)	(2,901		)
Customer deposits and funds held for others	1,384			137
Accrued interest	(626		)	344
Total adjustments, net	4,009			(4,004		)
Net cash used in operating activities	(12,664		)	(10,412		)
Cash flows from investing activities:
Proceeds from sale of real estate owned and operating properties and other assets	895			8,709
Purchases of property and equipment	(23		)	(23		)
Mortgage loan payoff	3,000			—
Mortgage loan investment and fundings	(1,966		)	(3,000		)
Investment in unconsolidated entities	(2,612		)	—
Acquisition of cash and restricted cash through foreclosure	2,900			—
Investment in real estate owned and other operating properties	(13,359		)	(7,208		)
Acquisition of non-controlling interests	(2,250		)	—
Net cash used in investing activities	(13,415		)	(1,522		)
Cash flows from financing activities:
Proceeds from notes payable	13,662			—
Debt issuance costs paid	(144		)	(405		)
Repayments of notes payable	(10,176		)	(14		)
Dividends paid	(3,202		)	(1,926		)
Purchase of treasury stock	(1,000		)	—
Proceeds from Issuance of Preferred Equity	6,000			30,000
Purchase of Interest rate cap	—			(548		)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-8

IMH FINANCIAL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2019			2018
Contribution of Hotel Fund capital costs	(48		)	(87		)
Contributions from Hotel Fund investors	7,518			9,815
Distributions to Hotel Fund investors	(1,005		)	(205		)
Net cash provided by financing activities	11,605			36,630
Net increase (decrease) in cash, cash equivalents, and restricted cash	(14,474		)	24,696
Cash, cash equivalents, and restricted cash, beginning of period	25,650			11,932
Cash, cash equivalents, and restricted cash, end of period	$	11,176		$	36,628
Supplemental cash flow information:
Cash paid for interest	$	1,212		$	308
Cash paid for taxes	$	90		$	—
Non-cash investing and financing transactions:
Foreclosure on investment in mortgage loan	$	7,625		$	—
Acquisition of operating property building and operations through foreclosure	$	7,379		$	—
Assumption of first mortgage, accrued interest and operating liabilities through foreclosure	$	13,303		$	—
Loan from JPM Chase Funding, Inc., (a related party) for purchase first mortgage on operating property	$	11,000		—
Lease liability arising from the recognition of right-of-use asset	$	1,431		$	—
Non-cash interest costs capitalized to operating property	$	1,000		$	—
Capital expenditures in accounts payable and accrued expenses	$	1,790		$	929
Decrease in non-controlling interest through profit participation	$	—		$	(1,939	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-9

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY

Our Company

IMH Financial Corporation (together with its subsidiaries, the “Company”) is a real estate investment and finance company based in the southwestern United States engaged in various and diverse facets of the real estate lending and investment process, including origination, acquisition, underwriting, servicing, enforcement, development, marketing, and disposition. The Company’s focus is to invest in, manage and dispose of commercial real estate mortgage investments, hospitality assets, and other real estate assets, and to perform all functions reasonably related thereto, including developing, managing and either holding for investment or disposing of real property acquired through acquisition, foreclosure or other means.

Our History and Structure

We were formed from the conversion of our predecessor entity, IMH Secured Loan Fund, LLC (the “Fund”), into a Delaware corporation. The Fund, which was organized in May 2003, commenced operations in August 2003, focusing on investments in senior short-term whole commercial real estate mortgage loans collateralized by first mortgages on real property. The Fund was externally managed by Investors Mortgage Holdings, Inc. (the “Manager”), which was incorporated in Arizona in June 1997 and is licensed as a mortgage banker by the State of Arizona. Through a series of private placements to accredited investors, the Fund raised $875 million of equity capital from May 2003 through December 2008. Due to the cumulative number of investors in the Fund, the Fund registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on April 30, 2007 and began filing periodic reports with the Securities and Exchange Commission (“SEC”). On June 18, 2010, the Fund became internally-managed through the acquisition of the Manager, and converted into a Delaware corporation in a series of transactions that we refer to as the “Conversion Transactions”. Effective August 1, 2019, the Company entered into a Non-Discretionary Investment Advisory Agreement (“Advisory Agreement”) with Juniper Investment Advisors, LLC (“Juniper Advisors”) pursuant to which Juniper Advisors will manage certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real estate owned properties.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements include the accounts of IMH Financial Corporation and the following wholly-owned operating subsidiaries: 11333, Inc. (formerly known as Investors Mortgage Holdings, Inc.), an Arizona corporation; Investors Mortgage Holdings California, Inc., a California corporation; IMH Holdings, LLC, a Delaware limited liability company (“Holdings”); and various other wholly owned subsidiaries established in connection with the acquisition of real estate either through foreclosure or purchase and/or for borrowing purposes and majority owned or controlled real estate entities and interests in variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. IMH Management Services, LLC, an Arizona limited liability company, provides us and our affiliates with human resources and administrative services, including the supply of employees. Other entities in which we have invested and have the ability to exercise significant influence over operating and financial policies of the investee, but upon over which we do not possess control, are accounted for by the equity method of accounting within the financial statements and they are therefore not consolidated.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Liquidity

We require liquidity and capital resources for our general working capital needs, including maintenance, development costs and capital expenditures for our operating properties and non-operating REO assets, professional fees, general and administrative operating costs, loan enforcement costs, financing costs, debt service payments, and dividends to our preferred shareholders, as well as to acquire our target assets.

As of September 30, 2019, our accumulated deficit aggregated $710.9 million primarily as a result of previous provisions for credit losses recorded relating to the decrease in the fair value of the collateral securing our legacy loan portfolio, impairment charges

IMH FINANCIAL CORPORATION

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NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY - continued

relating to the value of real estate owned (“REO”) assets acquired primarily through foreclosure, as well as on-going net operating losses resulting primarily from the lack of income-producing assets.

The Company has taken a number of steps to maintain an adequate level of on-going liquidity over the years. Our liquidity plan has included obtaining outside financing, selling mortgage loans, and selling the majority of our legacy real estate assets.

As further described in Note 11, during the three months ended September 30, 2019, JPMorgan Chase Funding Inc. (“Chase Funding”) purchased 1,875,000 shares of our Series B-4 Cumulative Convertible Preferred Stock (the “Series B-4 Preferred Stock”), at a price of $3.20 per share, for a total purchase price of $6.0 million. Dividends on the Series B-4 Preferred Stock are cumulative and accrue from the issue date, compounding quarterly at the rate of 5.65% of the issue price per year, and are payable quarterly in arrears. Holders of the Series B-4 Preferred Stock are entitled to receive a liquidation preference of 145% of the sum of the original price per share of the Series B-4 Preferred Stock plus all accrued and unpaid dividends. The Series B-4 Preferred Stock contains redemption features similar in all material respects to the Company’s other outstanding shares of Series B Preferred Stock.

In the second quarter of 2019, we conducted a UCC foreclosure on the collateral securing a $7.6 million mezzanine note receivable that was in default. That collateral was 100% of the membership interests in an LLC that owns a commercial real estate building and operations in St. Louis, Missouri. In connection with this foreclosure, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by this property. The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding and the balance using Company funds. The master repurchase agreement has an initial maturity date of May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.

In addition, in connection with the Company’s acquisition and renovation of the MacArthur Place Hotel in Sonoma, California (“MacArthur Place”), the Company entered into a building loan agreement and related agreements in October 2017 with MidFirst Bank in the amount of $32.3 million (the “MacArthur Loan”). As described in Note 9, the MacArthur Loan was modified during the first quarter of 2019 to increase the loan facility to $37.0 million and to establish certain additional reserve accounts in the amount of $2.0 million. The MacArthur Loan has an initial maturity of October 1, 2020 with twoone-year extension options available if certain criteria is met.

The modified MacArthur Loan required the Company to fund minimum equity of $27.7 million, all of which has been funded as of September 30, 2019. The Company has provided a loan repayment guaranty equal to 50% of the original principal amount of the MacArthur Loan along with a guaranty of interest and operating deficits, as well as other customary non-recourse carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum Tangible Net Worth, as defined, of $50.0 million and minimum liquidity of $5.0 million throughout the term of the MacArthur Loan. The Company was in compliance with such financial covenants as of September 30, 2019. In addition, the MacArthur Loan requires MacArthur Place to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

Commencing in November 2017 the Company sponsored an offering under SEC Regulation D of up to $25.0 million of preferred limited liability company interests (the “Preferred Interests”) of the L’Auberge de Sonoma Resort Fund, LLC (the “Hotel Fund”). The net proceeds of this offering were used primarily to (i) reimburse the Company’s for its initial $17.8 million common investment in the Hotel Fund and (ii) fund certain renovations and operating losses at MacArthur Place. As of September 30, 2019, the Hotel Fund had sold all of the Preferred Interests in the aggregate amount of $22.5 million. The Company has guaranteed and funded the payment of monthly 7% distributions to Preferred Interests since the commencement of the Hotel Fund which has totaled $1.6 million through September 30, 2019.

As of September 30, 2019, we had cash and cash equivalents of $7.4 million, REO assets held for sale with a carrying value of $7.4 million and other REO assets with a carrying value of $33.3 million that we seek to dispose of within the next 12 months. We continue to evaluate potential disposition strategies for our remaining REO assets and to seek additional sources of debt and equity for investment and working capital purposes. During the third quarter of 2019, a court-ordered stay that was previously issued, and which prevented the sale of certain assets, was lifted, thereby allowing us to market such assets for sale.

At any time after July 24, 2020, each holder of our Series B-1 and B-2 Preferred Stock may require the Company to redeem, out of legally available funds, the shares held by such holder at a price (the “Redemption Price”) equal to the greater of (i) 150% of the sum of the original price per share plus all accrued and unpaid dividends or (ii) the sum of the tangible book value of the

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Company per share of voting Common Stock and all accrued and unpaid dividends as of the date of redemption. A cash payment in the aggregate amount of $2.6 million is due and payable to the holders of the Series B-1 and B-2 Preferred Stock on July 24, 2020 whether or not a redemption is requested. The current holders of our Series B Preferred Stock are collectively referred to herein as the “Series B Investors”.

We expect our primary sources of liquidity over the next twelve months to consist of proceeds from the disposition of our existing REO assets held for sale and loan assets, proceeds from borrowings and equity issuances, current cash, mezzanine and mortgage loan interest income, and revenues from ownership or management of MacArthur Place and Broadway Tower. If we are able to resolve these matters favorably, we believe that our cash and cash equivalents coupled with our operating and investing revenues, as well as proceeds that we anticipate receiving from the disposition of our real estate assets and debt and equity financing efforts will be sufficient to allow us to fund our operations for a period of one year from the date these condensed consolidated financial statements are issued.

We have used third-party financing, proceeds from the sale of certain REO assets, and the payment of principal and interest on mortgage and related investments to satisfy for working capital purposes requirements through September 30, 2019. Subsequent to September 30, 2019, in order to meet impending liquidity requirements, we sold one of our mezzanine loan investments with a principal balance of $12.3 million at a discount incurring a loss of $2.6 million. We are also continuing to discuss the potential extension or restructuring of our Series B Preferred Stock with the holders of those shares and our outstanding debt obligations. There can be no assurance that these efforts will be successful or that we will sell our remaining REO assets in a timely manner or in obtaining additional or replacement financing, if needed, to sufficiently fund our future operations, repay existing debt, or to implement our investment strategy. Our failure to generate sustainable earning assets and to successfully liquidate a sufficient number of our REO assets may have a material adverse effect on our business, results of operations and financial position. In the absence of favorably resolving the matters described above, the collective nature of these uncertainties create substantial doubt about our ability to continue as a going concern for a period beyond one year from the date of issuance of these condensed consolidated financial statements.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Investment in Unconsolidated Entities

The Company holds ownership interests in an entity that does not meet the criteria under GAAP for consolidation. For this entity, the Company utilizes the equity method of accounting and records the net income and losses from the unconsolidated entity, as applicable, in net income attributable to non-controlling interests in the accompanying consolidated statements of operations.

Redeemable Convertible Preferred Stock

During the nine months ended September 30, 2019, the Company issued an additional 1,875,000shares of Series B-4 Preferred Stock. The Series B-4 Preferred Stock is convertible into common stock on a one-to-one basis, and is redeemable five years from the issuance date at the option of the holder for a redemption price equal to the greater of 145% of the original purchase price of the preferred stock or tangible net book value per share at redemption. The Series B-4 Preferred Stock is reported in the mezzanine equity section of the accompanying condensed consolidated balance sheet. Since the Series B-4 Preferred Stock does not have a mandatory redemption date (it is at the option of the holder), under applicable accounting guidance, the Company elected to amortize the redemption premium over the five year redemption period using the effective interest method and recording this as a deemed dividend, rather than recording the entire accretion of the redemption premium as a deemed dividend upon issuance of the preferred stock. The Company is required to assess whether the preferred stock is redeemable at each reporting period.

Operating Properties Acquired Through Foreclosure

Operating properties acquired through foreclosure consist of certain operating assets that the Company has elected to hold for on-going operations and are recorded at fair value at the time of foreclosure.

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Leases

Lessee Accounting

As further discussed below, the Company adopted the provisions of Accounting Standards Update 2016-02, Leases, effective January 1, 2019. We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are recorded in other assets and operating lease liabilities are recorded in accounts payable and other accrued expenses in the accompanying condensed consolidated balance sheet. Finance leases, none of which existed as of the adoption of Accounting Standards Codification (“ASC”) 842 or as of September 30, 2019, would be reflected in property and equipment and other liabilities in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

Lessor Accounting

On May 29, 2019, the Company acquired a commercial real estate building through a foreclosure action known as Broadway Tower located in St. Louis, Missouri which leases office space to various tenants. The assumed leases were previously accounted for according to ASC 840 and were classified as operating leases.  Upon transitioning these leases from being accounted for according to ASC 840 to being accounted for under ASC 842, the Company did not reassess the lease classification as allowed under the practical expedient package elected by the Company.

Pursuant to ASC 842 – 30, the Company will classify a lease as a sales – type lease if: (i) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (ii) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of September 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a sale – type lease.

Pursuant to ASC 842 – 30, when none of the sales-type lease classification criteria are met, a lessor would classify the lease as a direct financing lease when both of the following criteria are met: (i) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all (90% or more) of the fair value of the underlying asset and (ii) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. As of September 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a financing lease.

Pursuant to ASC 842 – 30, a lessor would classify a lease as an operating lease when none of the sales-type or direct financing lease classification criteria are met. As of September 30, 2019, all leases of the Company’s rental properties were classified as operating leases.

The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as commercial real estate rental revenue. Non-lease components included in commercial real estate rental revenue include certain tenant reimbursements for maintenance services, (including common-area maintenance services or “CAM”). Variable consideration for costs that are not contract components (e.g., real estate taxes, utilities) are excluded from

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total consideration and would be recorded as incurred by the lessee and earned by the lessor. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. Therefore, Accounting Standards Codification Topic 842, Leases (“ASC 842”), has been applied to these lease contracts for both types of components.

The Company has elected to present sales tax and other tax collections in the condensed consolidated statements of operations on a net basis and, accordingly, such taxes are excluded from reported revenues.

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space to tenants, common area maintenance charges and parking space rental. Leases with tenants are classified as operating leases and revenue is recognized on a straight line basis over the term of the respective leases. The cumulative differences between rental income recognized in the Company’s condensed unaudited consolidated statements of operations and contractual payment terms have been recorded as deferred rental income and presented on the accompanying condensed consolidated balance sheets.

The Company regularly reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon adoption of ASU 2016-02, effective January 1, 2019, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental income and does not record an allowance for uncollectible accounts.

Funds Held by Lender and Restricted Cash

The balance sheet item, “Funds held by lender and restricted cash”, includes amounts maintained in escrow or other restricted accounts deposited into reserve accounts held by lenders for contractually specified purposes, which includes property taxes and insurance. The following table provides a reconciliation of cash, cash equivalents, and funds held by lender and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30,		December 31,
	2019		2018
Cash and cash equivalents	$	7,447	$	25,452
Funds held by lender and restricted cash	3,729		198
Total cash, cash equivalents, and restricted cash	$	11,176	$	25,650

The balance of funds held by lender and restricted cash includes property tax, insurance and construction related reserves for the MacArthur Loan totaling $2.5 million and $0.2 million at September 30, 2019 and December 31, 2018, respectively. The September 30, 2019 balance also includes $1.2 million in an account maintained by the loan servicer on the Broadway Tower mortgage loan and is set aside for capital projects and tenant improvements. This account was acquired in connection with our foreclosure and acquisition of the Broadway Tower commercial office building in St. Louis, Missouri in the second quarter of 2019.

Mortgage Investment Revenue Recognition

See Note 3 for the Company’s accounting policy for Mortgage Investment Revenue Recognition.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s ASC. The Company considers the applicability and impact of all ASUs.

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NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES – continued

Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11 which provides an alternative transition method that allows entities to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has adopted the requirements of ASU 2016-02 on January 1, 2019, the first day of fiscal year 2019, and using the optional transition method. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we did not have to reassess whether an arrangement contains a lease, we carried forward our previous classification of leases as operating, and we did not have to reassess previously recorded initial direct costs. There was an increase in assets of $1.6 million and liabilities of $1.7 million due to the recognition of the required ROU asset and corresponding liability for all lease obligations that are currently classified as operating leases with the difference of $0.1 million related to existing deferred rent that reduced the ROU asset recorded. The adoption of this standard did not have an impact in our condensed consolidated statements of operations.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company has adopted the requirements of this accounting pronouncement in fiscal 2019.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Recently, the FASB voted to delay the effective date of ASU 2016-13 to January 1, 2023 for smaller reporting companies with a revised ASU expected in the fourth quarter of 2019. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

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NOTE 3 — REVENUE

The following is a breakdown of revenue by source for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Operating property revenue
Commercial real estate rental revenue	$	1,157	$	—	$	1,474	$	—
Hotel revenues
Rooms	1,498		1,311		2,456		3,207
Food and beverage	800		314		1,339		1,440
Banquet	343		175		373		333
Spa and fitness center	166		194		378		522
Other	118		91		175		251
Total operating property revenue	4,082		2,085		6,195		5,753
Mortgage loan income, net	340		709		1,438		1,976
Management fees, investment and other income	129		32		486		323
Total revenue	$	4,551	$	2,826	$	8,119	$	8,052

Operating Property Revenue

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space to tenants, common area maintenance charges and parking space rental. Leases with tenants are classified as operating leases and revenue is recognized on a straight line basis over the term of the respective leases.

Hotel Revenues

The Company derives hotel revenues from our hotel in Sonoma, California, which is reflected as operating property revenue in the consolidated statements of operations. Rooms revenue represents revenue from the occupancy of our hotel rooms and is driven by the occupancy and daily rate charged. Rooms revenue also includes revenue for guest no-shows, day use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay.

Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel, in-room dining and mini-bar revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audio-visual equipment/services, rental of function rooms, and other F&B related revenue. Revenue is recognized as the services or products are provided. Our hotel property may employ third parties to provide certain services at the property, for example, audio visual services. We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenue as appropriate (i.e., gross vs. net).

Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, resort fees, spa and other guest services. Attrition and cancellation fees are recognized for non-cancellable deposits when the customer provides notification of cancellation within established management policy time frames. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue.

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NOTE 3 — REVENUE – continued

Mortgage Investment Revenue Recognition

Interest on mortgage loans is recognized as revenue when earned using the interest method based on a 360 or 365 day year, in accordance with the related mortgage loan terms. We do not recognize interest income on loans once they are deemed to be impaired and placed in non-accrual status. Generally, a loan is placed in non-accrual status when (i) it is past its scheduled maturity by more than 90 days; (ii) it becomes delinquent as to interest due by more than 90 days; or (iii) the related fair value of the collateral is less than the total principal, accrued interest and related costs. We may determine that a loan, while delinquent in payment status, should not be placed in non-accrual status in instances where the fair value of the loan collateral significantly exceeds the principal and the accrued interest, as we expect that income recognized in such cases is probable of collection. Unless and until we have determined that the value of underlying collateral is insufficient to recover the total contractual amounts due under the loan term, generally our policy is to continue to accrue interest until the loan is more than 90 days delinquent with respect to accrued, uncollected interest or more than 90 days past scheduled maturity, whichever comes first.

We defer fees for loan originations, processing and modifications, net of direct origination costs, at origination and amortize such fees as an adjustment to interest income using the effective interest method. Revenue for non-refundable commitment fees is recognized over the remaining life of the loan as an adjustment to the interest income yield. We defer premiums or discounts arising from acquired loans at acquisition and amortize such premiums or discounts as an adjustment to interest income over the contractual term of the related loan using the effective interest method. We include the unamortized portion of the premium or discount as a part of the net carrying value of the loan in the condensed consolidated balance sheets. Costs not directly paid to the seller of the loan are expensed as incurred and not amortized, except for any fees paid directly to the seller.

NOTE 4 — MORTGAGE LOANS, NET

Lending Activities

As of September 30, 2019, the Company held four portfolio loans with a balance of $11.7 million, net of valuation allowances, two of which were performing loans bearing a weighted-average interest rate of 9.8% as of September 30, 2019. As of December 31, 2018, the Company held six portfolio loans with a balance of $23.2 million, net of valuation allowances, three of which were performing loans bearing a weighted-average interest rate of 9.4%. As of September 30, 2019 and December 31, 2018, the Company held two and three non-performing portfolio loans, respectively, two of which have been fully reserved and have a zero carrying value as of September 30, 2019. The valuation allowance was $15.3 million as of September 30, 2019 and $13.1 million as of December 31, 2018. During the nine months ended September 30, 2019, one performing loan with a principal balance of $3.0 million was repaid in full. In addition, during the nine months ended September 30, 2019, we foreclosed on one of the Company’s mezzanine loan investments that had a carrying value of $8.2 million as of the date of foreclosure, which had been in default since September 2018. In May 2019, we foreclosed on the loan collateral consisting of 100% of the membership interests in the limited liability company owning the underlying property. We recorded the acquired assets and assumed liabilities at fair value and consolidated the operations commencing on the foreclosure date. See additional discussion in Notes 5 and 8.

During the three months ended September 30, 2019, and 2018, we recorded mortgage interest income of $0.3 million and $0.7 million, respectively. During the nine months ended September 30, 2019 and 2018, we recorded mortgage interest income of $1.4 million and $2.0 million, respectively.

While the Company has not originated any new loans in 2019, we funded $2.0 million during the nine months ended September 30, 2019 for a $13.1 million construction loan that was originated during 2018. As of September 30, 2019, our remaining commitment under that loan was $11.1 million.

As disclosed in Note 16, we sold a $12.3 million mezzanine note subsequent to September 30, 2019 at a discount and recorded a corresponding provision for credit loss of $2.6 million during the three and nine months ended September 30, 2019 which is reflected in the accompanying condensed consolidated financial statements.

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NOTE 5 — OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED

As of September 30, 2019, we held total REO assets of $105.8 million, of which $7.4 million were held for sale, $65.1 million were held as operating properties, and $33.3 million were classified as other real estate owned. As of December 31, 2018, we held total REO assets of $75.0 million, of which $7.4 million were held for sale, $33.9 million were held as operating properties and $33.7 million were classified as other real estate owned.

As described in Note 4, on May 29, 2019, we foreclosed on the membership interests of a limited liability company that was pledged as collateral on a defaulted mezzanine note receivable. The entity owns and operates a commercial office building known as Broadway Tower, located in St. Louis, Missouri. Upon foreclosure, we acquired the membership interests in the limited liability company that owns the office building and related assets, and assumed related liabilities of Broadway Tower, all of which were recorded at fair value in accordance with GAAP. The acquired assets consist of a building, land, furniture and fixtures, operating and reserve cash, and tenant receivables totaling approximately $22.6 million. Liabilities assumed consist of trade accounts payable and accrued liabilities, and accrued interest and principal on the first mortgage loan totaling approximately $15.5 million. In accordance with ASC 842, we recorded a right of use asset and related lease liability of $0.6 million, see Note 14. As described in Note 9, we purchased the Broadway Tower first mortgage note and accrued interest.

During the nine months ended September 30, 2019, the Company sold four REO assets for $0.9 million resulting in a gain on sale of $0.2 million for the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2018, the Company sold REO assets (or portions thereof) for $8.1 million and $8.7 million (net of transaction costs) resulting in a total net gain on sale of $3.5 million and $3.9 million, respectively.

REO Planned Development and Operations

Costs related to the development, renovation or improvements of the Company’s real estate assets are generally capitalized, while costs and expenses related to operating, holding and maintaining our operating properties and REO assets are expensed as incurred. Costs that are expensed as incurred are included in operating property direct expenses and as expenses for non-operating real estate owned in the accompanying condensed consolidated statements of operations. For the three months ended September 30, 2019 and 2018, these costs and expenses were $4.8 million and $2.5 million, respectively. For the nine months ended September 30, 2019 and 2018, these costs and expenses were $11.0 million and $7.2 million, respectively. Cash outlays for capitalized costs totaled $13.4 million and $7.2 million during the nine months ended September 30, 2019 and 2018, respectively, and consisted primarily of renovation costs for MacArthur Place and New Mexico properties well renovation costs.

NOTE 6 — VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES

Variable Interest Entities

As of September 30, 2019 and December 31, 2018, we consolidated multiple variable interest entities (“VIE’s”) relating to two primary projects: 1) various partnerships which own land and water rights located in New Mexico for which the Company retains both general partner and limited partner interests, and 2) the Hotel Fund, for which the Company is the sponsor and its subsidiary is the common member, that owns an MacArthur Place. We are deemed to be the primary beneficiaries of these consolidated VIE’s as we have the power to direct the activities that most significantly affect their economic performance and we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our consolidated VIE’s are only available to settle the obligations of the respective entities.

The following table summarizes the carrying amounts of the above referenced entities’ assets and liabilities included in the Company’s condensed consolidated balance sheets at September 30, 2019 and December 31, 2018, net of intercompany eliminations (in thousands):

	September 30, 2019		December 31, 2018
Total assets	$	100,143	$	85,240
Total liabilities	58,205		37,770

F-18

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 — VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES – continued

The following table summarizes the VIE’s results of operations for the three and nine months ended September 30, 2019 and 2018, net of intercompany eliminations (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(393	)	$	(262	)	$	(6,433	)	$	(786	)

The Company’s maximum exposure to loss from the operations of these VIE’s consists of its combined equity in those entities which totaled $26.4 million as of September 30, 2019. The Hotel Fund makes a preferred distribution, payable monthly accruing at a rate of 7.0% per annum on invested capital, cumulative and non-compounding (the “Preferred Distribution”). Preferred Distributions totaled $0.4 million and $1.0 million during the three and nine months ended September 30, 2019, respectively, and $0.1 million and $0.2 million during the three and nine months ended September 30, 2018, respectively.

Investment in Unconsolidated Entities

While the Company had not originated any new loans on its own behalf during 2019, during the three months ended September 30, 2019, the Company entered into an investment agreement withJuniper Bishops, LLC (a related party of a preferred shareholder and director of the Company)to participate in a $15.0 million mezzanine loan to a unrelated hotel owner and operator for the renovation of a luxury resort located in Sante Fe, New Mexico.  The mezzanine loan is secondary to a senior mortgage loan funded by an unrelated party.  The Company’s total commitment under this investment is $3.9 million, of which $2.6 million was funded as of September 30, 2019 and is reflected in “Investment in unconsolidated entities” in the accompanying condensed consolidated balance sheet. The Company funded $1.0 million of its remaining commitment subsequent to September 30, 2019.

NOTE 7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Derivative

We are exposed to risks arising from rising interest rates on our variable rate debt instruments. To manage these risks, we periodically use interest rate derivatives, which currently consists of an interest rate cap. To mitigate nonperformance risk, we routinely use a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.

During 2018, we entered into an interest rate cap with a notional amount of $36.0 million and a rate cap of 2.2%. The interest rate cap had an effective date of March 21, 2018 and terminates on March 1, 2021. This instrument was not designated as a cash flow hedge. After making fair value adjustments for this instrument during the 2019 and 2018 (see Note 8), the recorded value of the interest rate cap was zero as of September 30, 2019.

NOTE 8 — FAIR VALUE

Valuation Allowance and Fair Value Measurement of Loans, Real Estate Held for Sale, Other REO, and Derivative Instruments

Our valuation analysis process and procedures are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We perform a valuation analysis of our loans, REO held for sale, other REO, and derivative instruments on a quarterly basis. We consider all relevant, material circumstances to determine if, and the extent to which, a valuation allowance is required.

Impairment for collateral dependent loans is measured at the balance sheet date based on the then fair value of the collateral in relation to contractual amounts due under the terms of the applicable loan if foreclosure is probable. Substantially all of our loans in default are deemed to be collateral dependent.

REO assets that are classified as held for sale and other REO are measured at the lower of carrying amount or fair value, less estimated cost to sell. If an asset is considered impaired, an impairment loss is recognized for the difference between the asset’s carrying amount and its fair value, less estimated cost to sell. If we elect to change the disposition strategy for our other REO, and such assets were deemed to be held for sale, we may record additional impairment charges, and the amounts could be significant.

F-19

IMH FINANCIAL CORPORATION

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 — FAIR VALUE – continued

Selection of Single Best Estimate of Value

The results of our valuation efforts generally provide a range of values for the collateral valued or REO assets rather than a single value. The selection of a value from within a range of values depends upon general overall market conditions as well as specific market conditions for each property valued and its stage of entitlement or development. In selecting the single best estimate of value, we consider the information in any relevant valuation reports, credible purchase offers received and agreements executed, as well as multiple observable and unobservable inputs.

Fair Value Measurements of Operating Properties Acquired Through Foreclosure

As described in Note 4, on May 29, 2019, we foreclosed on the membership interests of a limited liability company that was pledged as collateral on a defaulted mezzanine note receivable. The limited liability company owns and operates a commercial office building known as Broadway Tower, located in St. Louis, Missouri. Upon foreclosure, we acquired the membership interests in the limited liability company that owns the office building and related assets, and assumed related liabilities of Broadway Tower, all of which were recorded at fair value in accordance with GAAP. The valuation methodology used to conclude our position on the fair value was based on the income approach using a discounted cash flow methodology.

Fair Value Measurements of Derivative Instrument

The Company acquired an interest rate cap in 2018 to mitigate its risk on certain variable debt against rising interest rates. In order to estimate the fair value of this derivative instrument, we use valuation reports from the third party broker who issued the derivative instrument. The report calculates fair value by using inputs, including market-observable data such as U.S dollar and foreign-denominated interest rate curves, foreign exchange rates, volatilities, and information derived from or corroborated by market-observable data which are classified as Level 2 inputs in the fair value hierarchy. The fair value method does not contemplate credit valuation adjustments (“CVA”) which would be a Level 3 input as the CVA uses credit spreads which are generally unobservable to the market. The fair value used in our financial statements approximate fair value without the CVA. As of September 30, 2019, the fair value of the interest rate cap was $0 and we recorded an unrealized loss on derivative instruments of $39.0 thousand and $0.3 million during the three and nine months ended September 30, 2019, respectively, and none during the three and nine months ended September 30, 2018.

Valuation Conclusions

Based on the results of our evaluation, analysis and subsequent events, we recorded a provision for credit loss on our loan portfolio of $2.6 million in the third quarter of 2019 relating to the sale of a $12.3 million mezzanine loan investment subsequent to September 30, 2019 which resulted in a loss. We recorded no impairment of REO during the three and nine months ended September 30, 2019. We did not record any non-cash provision for credit losses on our loan portfolio or impairment of REO during the three and nine months ended September 30, 2018. We recorded offsetting net recoveries of investment and credit losses totaling $1.1 million during the nine months ended September 30, 2019, and $0.2 million for the nine months ended September 30, 2018, resulting from the collection of cash and/or other assets recovered from certain guarantors on certain legacy loans and insurance recoveries received during the period.

As of September 30, 2019, the valuation allowance on our mortgage loans totaled $15.3 million, representing 57.7% of the total outstanding loan principal and accrued interest balances. As of December 31, 2018, the valuation allowance on our mortgage loans totaled $13.1 million, representing 37.1% of total outstanding loan principal and accrued interest balances. With the existing valuation allowance recorded as of September 30, 2019, we believe that, as of that date, the fair value of our loans, REO assets held for sale, and other REO is adequate in relation to the net carrying value of the related assets and that no additional valuation allowance or impairment is considered necessary. While the above results reflect management’s assessment of fair value as of September 30, 2019 based on currently available data, we will continue to evaluate our loans and REO assets to determine the appropriateness of the carrying value of such assets. Depending on market conditions, such updates may yield materially different values and potentially increase or decrease the valuation allowance for loans or impairment charges for REO assets.

F-20

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

As of September 30, 2019 and December 31, 2018, our notes payable and special assessment obligations consisted of the following (in thousands):

	September 30,			December 31,
	2019			2018
$37.0 million note payable, as amended, to MidFirst Bank secured by a first lien on MacArthur Place, interest-only payments due monthly at the 30-day LIBOR (2.00% and 2.50% at September 30, 2019 and December 31, 2018, respectively) plus between 3.54% - 3.75% depending on compensating balances and meeting certain financial thresholds and terms (5.54% and 6.04% effective rate at September 30, 2019 and December 31, 2018, respectively), matures October 1, 2020 with two one-year extension options, with construction completion and repayment guarantees provided by the Company.	$	35,455		$	20,669
$11.0 million note payable to JPMorgan Chase Funding Inc. secured by the $13.2 million first mortgage note on the property known as Broadway Tower, bearing interest at one month LIBOR plus 3.81% (5.81% as of September 30, 2019), requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.	11,000			—
$5.9 million note payable to Southwest Lending, LLC, secured by real estate in New Mexico, annual interest only payments based on prime plus 3.0% through maturity date of December 31, 2019. (8.0 % and 8.25% as of September 30, 2019 and December 31, 2018, respectively.)	5,940			5,940
Unsecured note payable under class action settlement, face amount of $10.2 million, matured and paid in full on April 28, 2019.	—			9,899
Special assessment bonds dated between 2002 and 2007, secured by the residential land located in Dakota County, Minnesota, annual interest rate ranging from 6%-7.5%, maturing various dates through 2022 (classified as held for sale as of March 31, 2018).	75			90
Total notes payable	52,470			36,598
Less: deferred financing fees	(306		)	(284		)
Notes payable, net of deferred financing fees	$	52,164		$	36,314

Interest expense for the three months ended September 30, 2019 and 2018 was $0.4 million and $0.8 million, respectively. Interest expense for the nine months ended September 30, 2019 and 2018 was $1.2 million and $2.3 million, respectively. The Company capitalized interest relating to the MacArthur Loan in the amount of $0.2 million and $1.0 million for the three and nine months ended September 30, 2019. There was no capitalized interest during 2018.

F-21

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS – continued

Senior Indebtedness

MacArthur Place

In October 2017, we closed on a $32.3 million acquisition and construction loan from MidFirst Bank in connection with our purchase of MacArthur Place (the “MacArthur Loan”), of which (i) $19.4 million was utilized for the purchase of MacArthur Place, (ii) approximately $10.0 million was set aside to fund planned hotel improvements, and (iii) the balance to fund interest reserves and operating capital. During the nine months ended September 30, 2019, the MacArthur Loan was modified to, among other things, increase the total loan facility to $37.0 million, thereby increase the Company’s equity commitment to $27.7 million due to projected increased renovation costs, and to establish certain additional reserve accounts in the amount of $2.0 million for the completion of certain aspects of the renovation project. The principal balance of the loan was $35.5 million and $20.7 million at September 30, 2019 and December 31, 2018, respectively. The loan bears floating interest equal to the 30-day LIBOR rate (2.00% at September 30, 2019) plus 3.54%, which may be reduced by up to 0.50% if certain conditions are met, which were met as of September 30, 2019. The loan has an initial term of three years subject to the right of the Company to extend the maturity date for twoone-year periods, provided that the loan is in good standing and upon satisfaction of certain other conditions, including payment of an extension fee equal to 0.35% of outstanding principal per extension. The Company is required to make interest-only payments during the initial three year term. During the nine months ended September 30, 2019, the Company made loan draws totaling $14.8 million, of which $13.7 million represented renovation costs and operating draws and $1.1 million represented draws against the interest reserve on the loan. The Company incurred deferred financing fees of $0.5 million which are being amortized over the term of the loan using the effective interest method.

The MacArthur Loan is secured by a deed of trust on all MacArthur Place real property and improvements, and a security interest in all furniture, fixtures and equipment, licenses and permits, and MacArthur Place related revenues. The Company agreed to provide a construction completion guaranty which shall be released upon payment of all project costs and receipt of a certificate of occupancy. In addition, the Company provided a loan repayment guaranty equal to 50% of the loan principal along with a guaranty of interest and operating deficits, as well as other customary carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum tangible net worth of $50.0 million and minimum liquidity of $5.0 million throughout the term of the loan. The Company was in compliance with these covenants and guarantees at September 30, 2019. The Company is required to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement, including a $2.0 million spa reserve to be used for the planned spa renovation which is scheduled to commence in the first quarter of 2020. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

Exchange Notes

In April 2014, we completed an offering of a five-year, 4%, unsecured notes to certain of our shareholders in exchange for common stock held by such shareholders at an exchange price of $8.02 per share (“Exchange Offering”). Upon completion of the Exchange Offering, we issued Exchange Offering notes (“EO Notes”) with a face value of $10.2 million, which were recorded by the Company at fair value of $6.4 million based on the fair value and the imputed effective yield of such notes of 14.6% (as compared to the note rate of 4%). The EO Notes matured and all outstanding principal and interest were paid on April 29, 2019.

New Mexico Land Purchase Financing

As of September 30, 2019, the Company had an outstanding note payable in the amount of $5.9 million secured by certain real estate located in New Mexico with a carrying value of $6.8 million. The note bears interest at the Prime Rate as reported by The Wall Street Journal plus 3% and requires interest only payments due annually on December 31 of each year with the principal balance and any accrued unpaid interest due upon the earlier of 1) December 31, 2019, or 2) sale of the underlying collateral property. The note may be prepaid in whole or in part without penalty, and includes certain maturity extension provisions which the Company may choose to exercise.

JPMorgan Chase Funding Inc. Master Repurchase Agreement

In the second quarter of 2019, we foreclosed on the collateral securing a defaulted mezzanine note receivable consisting of 100% of the membership interests in a limited liability company that owns a commercial real estate building in St. Louis, Missouri, known as Broadway Tower, thereby assuming its assets and liabilities, including a $13.2 million mortgage note payable secured by Broadway Tower. In a related transaction, a subsidiary of the Company purchased the $13.2 million first mortgage note. Since

F-22

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS – continued

we own both the entity that owns the first mortgage note as well as the entity that owes this obligation, the first mortgage loan and related interest has been eliminated in consolidation. The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding. The Chase Funding master repurchase agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. . The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved. The master purchase agreement is subject to a third party loan servicing agreement.

Our notes payable and special assessment obligations have the following scheduled maturities as of September 30, 2019 (in thousands):

Year	Amount
2019	$	5,955
2020	46,481
2021	26
2022	8
Less: deferred financing costs of notes payable	(306		)
Total	$	52,164

NOTE 10 — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision makers in deciding how to allocate resources and in assessing performance.

The information presented in our reportable segments tables that follow are based in part on internal allocations which involve management judgment. Substantially all revenues recorded are from external customers. There is no material intersegment activity.

As of and for the three and nine months ended September 30, 2019 and 2018, the Company’s reportable segments consisted of the following:

Hospitality and Entertainment Operations — Consists of revenues and direct operating expenses, depreciation and amortization relating to our hotel, spa, and food & beverage operations. This segment also reflects the carrying value of such assets and the related financing and operating obligations.

Mortgage and REO - Legacy Portfolio and Other Operations — Consists of the collection, workout and sale of new and legacy loans and REO assets, including financing of such asset sales, as well as the operating expenses (if any), carrying costs and other related expenses of such assets. This segment also includes operating properties that do not represent a strategic operating objective of the Company, such as Broadway Tower, and their rental revenue and tenant recoveries less direct property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses), depreciation and amortization from commercial real estate leasing operations, and the carrying value of such assets and the related financing and operating obligations.

Corporate and Other — Consists of our centralized general and administrative and corporate treasury activities. This segment also includes reclassifications and eliminations between the reportable operating segments and reflects the carrying value of corporate fixed assets and the related financing and operating obligations.

F-23

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued

Condensed consolidated financial information for our reportable operating segments as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 is summarized as follows (in thousands):

	September 30,		December 31,
Balance Sheet Items	2019		2018
Total Assets
Mortgage and REO Legacy portfolio and other operations	$	80,986	$	67,658
Hospitality and entertainment operations	66,931		52,753
Corporate and other	4,642		23,228
Consolidated total	$	152,559	$	143,639
	Nine Months Ended September 30,
Cash Flow Items	2019		2018
Expenditures for additions to long-lived assets
Mortgage and REO Legacy portfolio and other operations	$	1,071	$	2,321
Hospitality and entertainment operations	12,288		4,887
Corporate and other	23		23
Consolidated total	$	13,382	$	7,231

	Three Months Ended September 30, 2019
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	1,157		$	2,925		$	—		$	4,082
Mortgage loan income	340			—			—			340
Management fees, investment and other income	6			—			123			129
Total revenue	1,503			2,925			123			4,551
Total operating expenses	1,863			5,136			2,730			9,729
Other (income) expense
Gain on disposal of assets	(223		)	—			—			(223		)
Provision for (recovery of) credit losses, net	2,598			—			—			2,598
Unrealized loss on derivatives	—			39			—			39
Total other (income) expense	2,375			39			—			2,414
Total costs and expense, net	4,238			5,175			2,730			12,143
Loss before income taxes	(2,735		)	(2,250		)	(2,607		)	(7,592		)
Provision for income taxes	—			—			—			—
Net loss	$	(2,735	)	$	(2,250	)	$	(2,607	)	$	(7,592	)

F-24

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued

	Three Months Ended September 30, 2018
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	—		$	2,085		$	—		$	2,085
Mortgage loan income	709			—			—			709
Management fees, investment and other income	—			—			32			32
Total revenue	709			2,085			32			2,826
Total operating expenses	843			3,228			2,413			6,484
Other (income) expense
Gain on disposal of assets, net	(3,543		)	—			—			(3,543		)
Total other income	(3,543		)	—			—			(3,543		)
Total costs and expense, net	(2,700		)	3,228			2,413			2,941
Income (loss) before income taxes	3,409			(1,143		)	(2,381		)	(115		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	3,409		$	(1,143	)	$	(2,381	)	$	(115	)

F-25

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued

	Nine Months Ended September 30, 2019
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	1,474		$	4,721		$	—		$	6,195
Mortgage loan income	1,438			—			—			1,438
Management fees, investment and other income	92			—			394			486
Total revenues	3,004			4,721			394			8,119
Total operating expenses	3,538			12,453			7,252			23,243
Other (income) expense
Gain on Disposal of Assets, Net	(244		)	—			—			(244		)
Provision for (recovery of) credit losses, net	1,463			—			—			1,463
Unrealized loss on derivatives	—			330			—			330
Total other (income) expense	1,219			330			—			1,549
Total costs and expense, net	4,757			12,783			7,252			24,792
Loss before income taxes	(1,753		)	(8,062		)	(6,858		)	(16,673		)
Provision for income taxes	—			—			—			—
Net loss	$	(1,753	)	$	(8,062	)	$	(6,858	)	$	(16,673	)

F-26

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued

	Nine Months Ended September 30, 2018
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	—		$	5,753		$	—		$	5,753
Mortgage loan income	1,976			—			—			1,976
Management fees, investment and other income	2			240			81			323
Total revenue	1,978			5,993			81			8,052
Total operating expenses	2,256			9,440			6,877			18,573
Other (income) expense
Gain on disposal of assets, net	(3,938		)	—			—			(3,938		)
Provision for (recovery of) credit losses, net	(175		)	—			—			(175		)
Total other income	(4,113		)	—			—			(4,113		)
Total costs and expense, net	(1,857		)	9,440			6,877			14,460
Income (loss) before income taxes	3,835			(3,447		)	(6,796		)	(6,408		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	3,835		$	(3,447	)	$	(6,796	)	$	(6,408	)

NOTE 11 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Common Stock

Shares of Common Stock, Class B Common Stock, Class C Common Stock, and Class D Common Stock share proportionately in our earnings and losses attributable to common shareholders. There are no shares of Class D Common Stock outstanding as of September 30, 2019 or December 31, 2018.

Preferred Stock

In July 2014, the Company issued a total of 8.2 million shares of the Company’s Series B-1 and B-2 Cumulative Convertible Preferred Stock to certain investor groups in exchange for $26.4 million. Except for certain voting and transfer rights, the rights and obligations of the Series B-1 Preferred Stock and Series B-2 Preferred Stock are substantially the same

On February 9, 2018, Chase Funding purchased 2,352,941 shares of the Company’s Series B-3 Cumulative Convertible Preferred Stock (“Series B-3 Preferred Stock”) for a total purchase price of $8.0 million. The Series B-3 Preferred Stock contains redemption features similar in all material respects to those of all Series B-1 and B-2 Cumulative Convertible Preferred.

On September 25, 2019, Chase Funding purchased 1,875,000 shares of our Series B-4 Preferred Stock (the “Series B-4 Preferred Stock” and collectively with the Series B-1 Preferred Stock, Series B-2 Preferred Stock, and Series B-3 Preferred Stock, the “Series B Preferred Stock”), at a purchase price of $3.20 per share, for a total purchase price of $6.0 million. Dividends on the Series B-4 Preferred Stock are cumulative and accrue from the issue date and compound quarterly at the rate of 5.65% of the issue price per year, and are payable quarterly in arrears. Holders of the Series B-4 Preferred Stock are entitled to receive a liquidation preference of 145% of the sum of the original price per share of Series B-4 Preferred Stock plus all accrued and unpaid dividends. The Series B-4 Preferred Stock contains redemption features similar in all material respects to the other Series B Preferred Stock.

F-27

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE – continued

On July 23, 2019, with an effective date of April 1, 2019, we entered into a Deferral and Consent agreement with the holders of our Series B Preferred Stock pursuant to which they agreed to a one-year extension of redemption date for shares of our Series B-1 and B-2 Preferred Stock they respectively hold. A cash payment in the aggregate amount of $2.6 million is due and payable to the holders of the Series B-1 and B-2 Preferred Stock on July 24, 2020 whether or not a redemption is requested.

Concurrent with Chase Funding’s purchase of our Series B-3 Cumulative Convertible Preferred Stock, the Company issued to Chase Funding a warrant to acquire up to 600,000 shares of the Company’s common stock (the “JPM Warrant”). The JPM Warrant is exercisable at any time on or after February 9, 2021 for a two (2) year period, and has an exercise price of $2.25 per share. The JPM Warrant provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions based on future corporate events. The JPM Warrant is exercisable in cash, and subject to certain conditions may also be exercised on a cashless basis. The warrant is classified in stockholders’ equity under the applicable guidance and were recorded at relative fair value at issuance.

Series A Redeemable Preferred Stock Issuance

On May 31, 2018, Chase Funding purchased 22,000 shares of the Company’s Series A Senior Redeemable Preferred Stock (the “Series A Preferred Stock”) at a purchase price of $1,000 per share, for a total purchase price of $22.0 million.

The Series A Preferred Stock ranks senior with respect to dividend and redemption rights and rights upon liquidation, dissolution or winding up of the Company to all other classes or series of shares of the Company’s preferred and common stock and to all other equity securities issued by the Company from time to time. The Series A Preferred Stock is non-voting stock. Holders of the Series A Preferred Stock are entitled to receive a liquidation preference equal to the sum of the initial purchase price of the Series A Preferred Stock plus all accrued and unpaid dividends. Dividends on the Series A Preferred Stock are cumulative and accrue from the issue date at the rate of 7.5% of the issue price per year, payable quarterly in arrears on or before the last day of each calendar quarter. The Company has certain call rights with respect to the Series A Preferred Stock and the holders of Series A Preferred Stock have certain put rights which includes an acceleration of the put right if the Company is required to redeem any shares of junior securities in the event of certain non-compliance events as described in the Company’s Series B Preferred Certificate of Designation.

Our Series B Preferred Stock and Series A Preferred Stock are classified as mezzanine equity in the accompanying condensed consolidated balance sheets.

Treasury Stock

On January 11, 2019, the Company concluded a tender offer to purchase up to 477,170 shares of Class B Common Stock and 22,830 shares of Class C common stock for $2.00 per share. The tender offer was over-subscribed and the 500,000 shares were purchased on a pro rata basis among the participating shareholders. The repurchase of these shares was treated as a treasury stock repurchase as reflected in the condensed consolidated balance sheet.

Share-Based Compensation

During the nine months ended September 30, 2019, the Company issued 332,722 shares of common stock pursuant to previous restricted stock awards. The Company granted 74,405 shares of restricted stock (for which certain tax elections were taken subsequent to September 30, 2019) and 117,449 stock options during the nine months ended September 30, 2019.

As of September 30, 2019, there were (i) 1,152,361 stock options outstanding, of which 1,046,196 shares were fully vested, (ii) 2,600,000 unvested stock warrants outstanding; and (iii) 152,228 shares of unvested restricted stock grants outstanding, net of tax elections taken. Vested restricted stock grants have been issued and are included in outstanding common stock.

Net stock-based compensation expense relating to the stock-based awards was $0.3 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $0.4 million for the nine months ended September 30, 2019 and 2018, respectively. We did not receive any cash from option or warrant exercises during the three or nine months ended September 30, 2019 or 2018. As of September 30, 2019, there was $0.3 million of unrecognized compensation cost related to all unvested equity based awards that is expected to be recognized as a charge to earnings over a weighted-average vesting period of 1.31 years.

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE – continued

Net Income (Loss) Per Share

The Company has adopted the two-class computation method, and thus includes all participating securities in the computation of basic shares for the periods in which the Company has net income available to common shareholders. A participating security is defined as an unvested share-based payment award containing non-forfeitable rights to dividends regardless of whether or not the awards ultimately vest or expire. Net losses are not allocated to participating securities unless the holder has a contractual obligation to share in the losses.

The following table presents a reconciliation of net loss to net loss attributable to common shareholders used in the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands, except for per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Earnings allocable to common shares:
Numerator - Loss Attributable to Common Shareholders:
Net loss	$	(7,592	)	$	(115	)	$	(16,673	)	$	(6,408	)
Net (income) loss attributable to non-controlling interest	(893		)	(1,105		)	(1,334		)	(990		)
Preferred dividends	(2,108		)	(1,997		)	(6,115		)	(5,114		)
Net loss attributable to common shareholders	$	(10,593	)	$	(3,217	)	$	(24,122	)	$	(12,512	)
Denominator - Weighted average shares:
Weighted average common shares outstanding for basic and diluted earnings per common share	16,525,282			16,726,610			16,431,448			16,696,201
Basic and diluted earnings per common share:
Net loss per common share	$	(0.51	)	$	(0.07	)	$	(1.10	)	$	(0.44	)
Preferred dividends per share	(0.13		)	(0.12		)	(0.37		)	(0.31		)
Net loss attributable to common shareholder per share	$	(0.64	)	$	(0.19	)	$	(1.47	)	$	(0.75	)

The following securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive (presented on a weighted average balance):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Options to purchase common stock	1,108,027	1,085,497	1,093,090	1,080,442
Restricted stock	147,722	318,390	256,129	362,829
Warrants to purchase common stock	2,600,000	2,541,286	2,600,000	2,600,000
Convertible preferred stock	10,675,224	10,216,807	10,594,150	10,552,941
Total	14,530,973	14,161,980	14,543,369	14,596,212

NOTE 12 — INTANGIBLE ASSETS AND GOODWILL

In connection with the purchase of MacArthur Place, we allocated a portion of the total purchase price to certain intangible assets and goodwill. Of the total $16.3 million allocated to purchased intangibles, $0.1 million, $0.8 million, and $15.4 million were allocated to trade name and other, customer relationships, and goodwill, respectively.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 — INTANGIBLE ASSETS AND GOODWILL - continued

The changes in the carrying amount of intangibles and goodwill allocated to our Hospitality and Entertainment Operations segment for the nine months ended September 30, 2019 is as follows (in thousands):

	Goodwill		Other intangibles, net
Balance at December 31, 2018	$	15,357	$	641
Reductions:
Amortization expense	—		(210		)
Balance at September 30, 2019	$	15,357	$	431

A summary of our intangible assets and goodwill as of September 30, 2019 and December 31, 2018 is as follows (in thousands):

	Gross Carrying Amount				Accumulated Amortization						Net Carrying Amount
	September 30,		December 31,		September 30,			December 31,			September 30,		December 31,
	2019		2018		2019			2018			2019		2018
Amortizing intangible assets:
Trade name and other	$	90	$	90	$	(26	)	$	(16	)	$	64	$	74
Customer relationships	800		800		(533		)	(333		)	267		467
Non-amortizing intangible assets:
Liquor license	100		100		—			—			100		100
Goodwill	15,357		15,357		—			—			15,357		15,357
	$	16,347	$	16,347	$	(559	)	$	(349	)	$	15,788	$	15,998

Trade name and other, and customer relationships have weighted-average useful lives from the date of purchase of 7.0 years and 3.0 years, respectively. Goodwill and our liquor license are not subject to amortization due to the indeterminable life of such assets. Amortization expense relating to our purchased intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2019, respectively. Amortization expense relating to our purchased intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2018, respectively. We perform an impairment assessment on goodwill and intangible assets annually in the fourth quarter of each year.

As of September 30, 2019, expected amortization expense for our purchased amortizing intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year	Amount
2019	$	70
2020	213
2021	13
2022	13
2023	13
Thereafter	9
Total	$	331

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 — COMMITMENTS AND CONTINGENCIES

Construction and Related Guarantees

As described in Note 9, the Company agreed to provide MidFirst Bank with a loan repayment guaranty equal to 50% of the sum of the outstanding principal and accrued and unpaid interest on the MacArthur Loan, plus a guaranty of 50% of hotel operating costs, enforcement costs under the loan (if any), and recourse amounts that may come due (if any). The Company has also provided

a construction completion guaranty with respect to the planned renovations of MacArthur Place. The construction completion guaranty will be released upon payment of all project costs and receipt of a certificate of occupancy. The MidFirst Bank loan documents also require that the loan remain “in balance” throughout its term such that the sum of all remaining undisbursed loan funds and the amounts expended by the Company will be sufficient to meet the approved construction budget and pay the loan interest. If the loan becomes “out of balance”, the Company must fund the difference. Excess costs incurred to date have been funded by the Hotel Fund or the Company and management expects that the Hotel Fund or the Company will fund any further excess costs.

Guarantor Recovery

We have pursued and periodically receive favorable judgments against guarantors in connection with their personal guarantees of certain legacy loans on which we previously foreclosed. Similarly, we have filed claims against certain insurance providers and other parties for reimbursement of amounts we believe are due to the Company under such policies. Due to the uncertainty of the nature and extent of the available assets of these guarantors to pay the judgment amounts or amounts collectible under insurance claims, we do not record recoveries for any amounts due under such judgments or claims, except to the extent we have received assets without contingencies.

We continue to pursue, investigate and evaluate the assets available of guarantors to collect all amounts due under judgments received in our favor. However, to the extent that such amounts are not determinable, they have not been recognized as recovery income in the accompanying consolidated statements of operations. Further recoveries under this and other judgments received in our favor will be recognized when realization of the recovery is deemed probable and when all contingencies relating to recovery have been resolved. We recorded recoveries during the three and nine months ended September 30, 2019 of $1.1 million relating to cash collected on a guarantor claim. We recorded recoveries during the three and nine months ended September 30, 2018 of $0.2 million.

Employee Benefit Plan

The Company, through its human resource provider, participates in a 401(k) retirement savings plan that allows for eligible participants to defer compensation, subject to certain limitations imposed by the Internal Revenue Code of 1986, as amended. The Company may provide a discretionary matching contribution of up to 4% of each participant’s eligible compensation. During each of the three months ended September 30, 2019 and 2018, the Company’s matching contribution was $0.1 million, which is included in general and administrative expenses in the accompanying consolidated statement of operations.

Legal Matters

We may be a party to litigation as the plaintiff or defendant in the ordinary course of business. While various asserted and unasserted claims may exist, resolution of these matters cannot be predicted with certainty. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the uncertainty of predicting the outcome of litigation and regulatory matters, it is generally difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be materially higher or lower than any amounts reserved for the claims.

Partnership Claims

In August 2016, a limited liability company member of Carinos Properties, LLC (“Carinos”) and Unit 6 Partners, LLC (“UP6”), filed a complaint in the United States District Court for the District of Arizona (“Federal Court”) generally alleging the Company breached its fiduciary duty to plaintiff under ERISA with respect to certain property we own in New Mexico. In April 2018, the court denied the Company’s motion for summary judgment in the case, but stayed any further action in the case pending the results

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 — COMMITMENTS AND CONTINGENCIES - continued

of related litigation before the state trial court (“State Court”) described below. Damages were not specified in the Federal Court. During the three months ended September 30, 2019 a settlement and release agreement in this matter was executed which resulted in, among other things, 1) dismissal of this litigation, and 2) the Company’s receipt of the limited partner interests in the underlying entities (which had the impact of decreasing the non-controlling interest recorded for such interests in the accompanying financial statements), in exchange for cash payment of $2.7 million. The Company did not incur a loss as a result of this transaction as the fair value of the limited partner interests received exceeded the cash payment amount.

In the first fiscal quarter of 2017, Recorp-New Mexico Limited Partnership (“RNMA I”) conducted a capital call pursuant to its organizational documents.  As a result of the capital call, certain limited partnership interests in RNMA I were transferred to one or more subsidiaries of the Company.  One of the limited partners in RNMA I whose limited partnership interests were transferred filed suit challenging the effectiveness of the transfer and forfeiture of his limited partnership interests in State Court.  On January 4, 2019, the court issued a minute entry, holding, among other things, that the limited partner’s limited partnership interest in RNMA I was not forfeited.  On January 22, 2019, the subsidiary of the Company filed a motion for a new trial on the minute entry ruling.  On March 21, 2019, the court issued an order staying its January 4, 2019 minute entry ruling, and granting a new trial.  An evidentiary hearing was held in early August 2019 on certain factual questions, and the court requested post trial briefing in September 2019.  Post trial briefing has concluded, and the Company awaits the State Court’s ruling. Based on the advice of counsel, management believes (a) the court’s January 4, 2019 minute entry finding was incorrect as to matters of both fact and law, and (b) the transfer of the limited partnership interests by the then-acting general partner was done in accordance with the rights granted to the general partner under the relevant organizational documents, and we believe that it is probable that the court, after consideration of the above referenced September 2019 post trial briefing, will ultimately agree with those conclusions. However, if the State Court were to rule that the limited partner interest transfers were ineffective, this could result in the recording of non-controlling interests in that partnership of approximately $3.1 million as of December 31, 2018.  Management does not believe that loss is probable and, accordingly, no amounts have been accrued for this matter in the accompanying condensed consolidated financial statements.

In September 2017, the State Court ordered the termination of the receivership over Stockholder, LLC, a wholly-owned subsidiary of the Company (“Stockholder”). Stockholder is the owner of all of the shares of stock in certain corporations that act as the general partner / limited liability company manager of several entities that own land and/or certain water interests in New Mexico.

In December 2017, the State Court entered an interim “stay” order in the Company’s case against judgment debtor David P. Maniatis and his affiliates (“Maniatis”) enjoining the Company from taking any further collection action against Maniatis, pending an accounting of all previous debt collection activities and a trial on certain limited issues involving the calculation of interest and penalties on the original defaulted debt guaranteed by Maniatis. The stay order also temporarily inhibited the Company from effecting the sale or transfer of all or any part of the property previously acquired by the Company through litigation involving Maniatis, including approximately 7,000 acres of land and related water interests in New Mexico, and 111 acres of land in Texas. Subsequent to March 31, 2019, the State Court lifted the stay on all property previously acquired by the Company through litigation involving Maniatis except for the ownership interests in, and property held by, RNMA I.  The ownership interests in, and property of, RNMA I remain subject to the stay until the date that is 30 days after the resolution of the above-described RNMA I dispute. Management does not believe that loss is probable and, accordingly, no amounts have been accrued for this matter in the accompanying condensed consolidated financial statements.

In April 2019, the New Mexico state trial court amended an order enjoining certain individuals from taking any action with regard to certain real property in the Rio West/Albuquerque project. The amendment expanded the injunction to include Recorp/IMH from transferring any partnership ownership interests (or assets owned by these partnerships) until further order of the court. This entire case was dismissed on September 18, 2019, and all injunctions (as modified) have been terminated. The deadline to appeal the dismissal of these actions has expired.

Intercreditor Agreement Claim

The Company and certain of our subsidiaries are defendants in a case that is in the Arizona federal district court. The case arose from claims by a creditor of the Justin 123 receivership alleging breach of contract and other related claims stemming from a Partial Settlement and Intercreditor Agreement entered into among the major creditors, including the claimant and certain of our subsidiaries the a receiving proceeding. The suit seeks damages of $0.3 million, plus attorney fees and punitive damages. The Company believes that the claims are without merit and intends to vigorously defend its position. Management does not believe that any obligation it may ultimately incur would not have a material adverse effect on its financial condition or its result of operations.

F-32

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 — COMMITMENTS AND CONTINGENCIES - continued

Hotel Fund Obligations

If the Hotel Fund has insufficient operating cash flow to pay the Preferred Distribution in a given month, the Company is obligated to provide the funds necessary to pay the Preferred Distribution for such month. Such payment is treated as an additional capital contribution to the Hotel Fund by the Company. During the nine months ended September 30, 2019, the Company funded $1.1 million of Preferred Distributions, and from inception through September 30, 2019, the Company has funded $1.6 million. The Company also agreed to fund, in the form of common capital contributions, up to 6.0% of the Hotel Fund offering’s gross proceeds as selling commissions and up to 1.0% of the gross proceeds raised in the offering as nonaccountable expense reimbursements to broker-dealers based on the capital raised by them for the Hotel Fund. During the nine months ended September 30, 2019 and from inception through September 30, 2019, the Company paid $0.1 million to the Hotel Fund pursuant to these broker-dealer obligations.

Other

We are subject to oversight by various state and federal regulatory authorities, including, but not limited to, the Arizona Corporation Commission, the Arizona Department of Financial Institutions (Banking), and the SEC. Our income tax returns have not been examined by taxing authorities and all statutorily open years remain subject to examination.

F-33

IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 — LEASES

Lessor

On May 29, 2019, we foreclosed on all of the membership interests of Hertz Broadway Tower, LLC, (“Hertz Broadway”), the owner of Broadway Tower.

As a result, we acquired Broadway Tower its related assets and business operations and assumed related liabilities. The Company assumed 51 commercial office leases for the building’s floor space and parking spaces. (See Note 4 for further discussion of this transaction).

Prior to this foreclosure transaction, Hertz Broadway accounted for the leases under ASC 840 - Leases. Thereafter, the Company adopted the requirements of ASU 2016-02 with respect to such leases. The lessor accounting model under ASU 2016-02 is similar to existing guidance, however, it limits the capitalization of initial direct leasing costs, such as internally generated costs. The adoption of ASU 2016-02 for this lease did not have an impact in our consolidated financial statements. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we were not required to reassess whether the agreements contain a lease. Accordingly, we carried forward the previous classification of the leases as operating and did not have to reassess previously recorded initial direct costs.

These lease agreements have been recorded in revenue during the three and nine months ended September 30, 2019. The Company’s operating leases have non-cancellable lease terms of 0.9 years to 10.1 years as of September 30, 2019. Certain leases with tenants include options to extend or terminate the lease agreements. The Company believes the residual value risk is not a primary risk because of the long-lived nature of the asset.

The following table presents minimum lease revenues and variable lease revenue for the three and nine months ended September 30, 2019 (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease revenue
Fixed rent - Minimum lease revenue	$	1,091	$	—	$	1,387	$	—
Variable lease revenue	66		—		87		—
Total lease revenue	$	1,157	$	—	$	1,474	$	—

Variable rent includes costs reimbursed related to property operating expenses, common area maintenance, insurance and property taxes.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands).

Years ending	Amount
Remainder of 2019	$	870
2020	3,744
2021	3,796
2022	3,416
2023	2,306
Thereafter	3,639
Total	$	17,771

Lessee

We have operating leases for our corporate headquarters office space and certain office equipment. Our leases have remaining lease terms of between one to four years. The lease for our corporate office includes an option to extend the lease term for up to

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 — LEASES - continued

five years. This option is not included in the calculation of the ROU assets and lease liabilities because the Company is not reasonably certain that it will exercise the option. Lease expense was $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively, which is included in general and administrative expenses in the accompanying condensed consolidated statement of operations. As disclosed in Note 15, Juniper Investment Advisors, LLC (“JIA”) has also sublet a portion of the Company’s office space. During the three and nine months ended September 30, 2019, we recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33 thousand.

Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and were $0.1 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.1 million and $0.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Supplemental cash flow information related to leases for the nine months ended September 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	321
Non-cash investing and financing activities:
Right-of-use assets and lease liabilities recorded upon adoption of ASC 842
Right-of-use assets	$	1,574
Lease liabilities	$	1,693

Supplemental balance sheet information related to leases as of September 30, 2019 was as follows (thousands, except lease term and discount rate):

Operating leases
Operating lease right-of-use assets in other assets	$	1,330
Operating lease liabilities in accounts payable and other accrued expenses	$	1,431
Weighted average remaining lease term	2.8 years
Operating leases - Weighted average discount rate	7.1%

The following represents future payments on operating leases as of September 30, 2019 (in thousands):

Years ending	Amount
Remainder of 2019	$	214
2020	574
2021	575
2022	237
Total lease payments	1,600
Less imputed interest	(169		)
Total	$	1,431

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 — LEASES - continued

As of December 31, 2018, future minimum lease payments required under these various lease agreements are as follows (in thousands):

Years ending	Amount
2019	$	305
2020	307
2021	307
2022	233
Total	$	1,152

NOTE 15 — RELATED PARTY TRANSACTIONS AND COMMITMENTS

Contractual Agreements

Interim CEO Arrangement

During the third quarter of 2019, the Company entered into a Termination of Employment Agreement, Release and Additional Compensation Agreement with Mr. Bain, the Company’s former Chairman of the Board and Chief Executive Officer (the “Bain Termination Agreement”) as well as certain other agreements. The material terms of these agreements are summarized below.

1) On July 30, 2019, the Company entered into a Consulting Services Agreement (the “ITH Consulting Services Agreement”) with ITH Partners, LLC, a Nevada limited liability company (“ITH”), pursuant to which ITH agreed to provide certain consulting services to the Company for a ninety (90) day period commencing effective as of July 25, 2019, subject to automatic thirty (30) day renewals unless earlier terminated by the parties as provided therein. Mr. Bain is the Managing Director of ITH. Pursuant to the ITH Consulting Services Agreement, Mr. Bain was appointed to fill a vacancy on the Board of Directors of the Company (created when Mr. Bain’s employment terminated and he stepped down from the Board of Directors) and served as interim Co-Chairman and Chief Executive Officer of the Company until November 1, 2019. The ITH Consulting Services Agreement imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company agreed to pay ITH a monthly consulting fee of $30,000 commencing August 1, 2019. As described in Note 16, the Company elected to terminate this agreement effective October 31, 2019;

2) Mr. Bain received a cash bonus of $0.6 million for his 2018 services (which was paid during the nine months ended September 30, 2019) and $0.35 million for his 2019 services, to be paid no later than March 31, 2020 (which has been accrued in the accompanying condensed consolidated financial statement in general and administrative expenses);

3) Mr. Bain is entitled to receive two payments of $0.25 million each by no later than January 31, 2020 and January 31, 2021, respectively;

4) Mr. Bain is entitled to receive a Legacy Asset Performance Fee (“LAPF”), as calculated in accordance with his prior employment agreement, in connection with the disposition of the Company’s interests in the assets of the New Mexico Partnerships (the “New Mexico Assets”) provided that such disposition occurs prior to December 31, 2022e;

5) On July 30, 2019, the Company and ITH also entered into a Consulting Services Agreement (the “New Mexico Asset Consulting Agreement”) pursuant to which ITH agreed to provide certain consulting services to the Company with respect to certain real property located in Sandoval County, New Mexico (the “New Mexico Asset”) for a period expiring on the earlier to occur of (a) consummation of the sale of all or substantially all of the New Mexico Asset and (b) December 31, 2022, unless such agreement is earlier terminated by the parties as provided therein. During the term of the New Mexico Asset Consulting Agreement, Mr. Bain is obligated to report to the Company’s Board of Directors and will serve as president of various corporations that serve as general partner of those entities that own the New Mexico Asset. The agreement also imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company has agreed to pay ITH a base monthly consulting fee of $5,000 commencing August 1, 2019, and an incentive bonus in the event that the Net Cash received from the sale of the New Mexico Asset exceeds certain minimum thresholds, after the payment of various reimbursements and expenses. ; and

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 — RELATED PARTY TRANSACTIONS AND COMMITMENTS - continued

6) All unvested equity awards and deferred compensation benefits granted to Mr. Bain were vested.

During the three months ended September 30, 2019, the Company paid Mr. Bain $83 thousand, net of certain withholdings, under the ITH Consulting Services Agreement and $15 thousand under the New Mexico Asset Consulting Agreement.

Under the terms of his employment agreement that expired on July 24, 2019, Mr. Bain is entitled to, among other things, legacy fee payments derived from the value of the disposition of certain legacy assets held by the Company as of December 31, 2010, if such assets are sold at values in excess of 110% of their carrying value as of December 31, 2010. Mr.Bain earned legacy fees of $0.1 million during the three and nine months ended September 30, 2019, and $35.0 thousand during the three and nine months ended September 30, 2018.

Juniper Capital Partners, LLC and Related Entities

In July 2014, the Company and JCP Realty entered into a consulting services agreement (the “JCP Consulting Agreement”) pursuant to which JCP Realty agreed to perform various services for the Company, including, but not limited to, (a) advising the Company with respect to identifying, structuring, and analyzing investment opportunities, and (b) assisting the Company in managing and liquidating assets, including non-performing assets. Our director, Jay Wolf, is the Managing Member of Juniper Capital Partners, the parent company of JCP Realty. The initial term of the Consulting Agreement was three years and was automatically renewable for an additional two years unless notice of termination was provided by either party. The Company and JCP entered into an amendment of the JCP Consulting Agreement dated October 17, 2017 pursuant to which: (i) the term was extended for two years that ended on July 24, 2019; (ii) the annual base consulting fee was reduced from $0.6 million to $0.5 million(subject to possible upward adjustment based on an annual review by our board of directors); and (iii) JCP is entitled to receive an origination fee of up to 1.25% on any loans or investments in real estate, preferred equity or mezzanine securities that are originated or identified by JCP (subject to a reduced fee based on the increasing size of the loan or investment). JCP is also entitled to legacy fee payments derived from the disposition of certain assets held by the Company as of December 31, 2010 to persons or opportunities arising through the efforts of JCP equal to 5.5% of the positive difference derived by subtracting (i) 110% of our December 31, 2010 valuation mark of that asset from (ii) the gross sales proceeds (on a legacy asset by asset basis without any offset for losses realized on any individual asset sales). The consulting services agreement terminated on July 24, 2019. During each of the nine months ended September 30, 2019 and 2018, we incurred base consulting fees to JCP of $0.2 million and $0.3 million, respectively. JCP earned legacy fees of none and $0.1 million during the three and nine months ended September 30, 2019 and, none and $0.2 million during the three and nine months ended September 30, 2018. The JCP Consulting Agreement was terminated effective July 14, 2019.

JIA Asset Management Agreement

On August 14, 2019, the Company entered into a non-discretionary investment advisory agreement (the “Advisory Agreement”) with Juniper Investment Advisors, LLC, a Delaware limited liability company (“JIA”), with an effective commencement date of August 1, 2019, pursuant to which JIA will manage certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real-estate owned properties. Under the terms of the Advisory Agreement, the Company will pay JIA a management fees ranging from 1.0% to 1.5% of the net asset value of certain assets under management, as well as a performance fee equal to 20% of the net profits from those assets upon disposition after the Company has received an annualized 7% return on its investment from those assets and recovery of the Company’s basis in such assets. In connection with the Advisory Agreement, certain employees of the Company have transitioned to become employees of JIA, and JIA has also sublet a portion of the Company’s office space. During the three and nine months ended September 30, 2019, we incurred base consulting fees to JIA of $52 thousand and recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33 thousand.

Jay Wolf, a director of the Company, is one of the owners of JIA and Juniper Capital Partners, LLC, a Delaware limited liability company, the sole member of Juniper NVM, LLC, a Delaware limited liability company (“JNVM”) and the manager of JCP Realty Partners, LLC, a Delaware limited liability company (“JCP Realty”). JCP Realty and JNVM hold shares of the Company’s the Series B-1 Preferred Stock.

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IMH FINANCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 — RELATED PARTY TRANSACTIONS AND COMMITMENTS - continued

Notes Receivable from Certain Partnerships

A subsidiary of the Company has entered into a lending facility with certain consolidated partnerships to lend up to a maximum of $5.0 million to cover the partnerships’ anticipated operating and capital expenditures. As of September 30, 2019, the total principal advanced was $5.0 million. The loans earn interest at rates ranging from the JP Morgan Chase Prime Rate plus 2.0% (7.50% at September 30, 2019) to 8.0% and have maturity dates which are the earliest to occur of: (1) the date of transfer of the partnerships real estate assets; (2) the date on which the current general partner of those partnerships resigns, withdraws or is removed as general partner; or (3) July 31, 2018. As the maturity date of such promissory notes have expired, the notes are in default and the Company is exploring its enforcement options. The promissory notes are cross collateralized and secured by real estate and other assets owned by such partnerships. These promissory notes and the related accrued interest receivable have been eliminated in consolidation.

JPMorgan Chase Funding Inc. Master Repurchase Agreement

As described in Note 9, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by Broadway Tower. The purchase of this note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding. The Chase Funding master repurchase agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date to May 22, 2021 if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.

Investment in Unconsolidated Entities

As described in Note 6, during the three months ended September 30, 2019, the Company entered into an investment agreement withJuniper Bishops, LLC (a related party of Jay Wolf, a director of the Company)to participate in a $15.0 million mezzanine loan to a unrelated hotel owner and operator for the renovation of a luxury resort located in Sante Fe, New Mexico.  The mezzanine loan is secondary to a senior mortgage loan funded by an unrelated party.  The Company’s total commitment under this investment is $3.9 million, of which $2.6 million was funded as of September 30, 2019 and is reflected in investment in unconsolidated entities in the accompanying condensed consolidated balance sheet. The Company funded $1.0 million of its remaining obligation subsequent to September 30, 2019.

NOTE 16 — SUBSEQUENT EVENTS

Mezzanine Loan Sale

Subsequent to September 30, 2019, the Company entered into an agreement with a third party to sell a $12.3 million mezzanine loan at a discount resulting in a loss of $2.6 million. The loss was recorded in the accompanying condensed consolidated statement of operations as a provision for credit loss during the three months ended September 30, 2019.

Investment in Unconsolidated Entities

Subsequent to September 30, 2019, the Company funded $1.0 million of its remaining obligation to Juniper Bishops, LLC under the terms of the that investment agreement as described in Note 6.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and accompanying notes as of and for the year ended December 31, 2018 included in our Annual Report on Forms 10-K and 10-K/A (“Form 10-K”), and with the unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”).

Forward-Looking Statements

This Form 10-Q contains forward-looking statements which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “will,” “plan,” “potential,” “should” and “would” or the negative of these terms or other comparable terminology. Forward-looking statements in this Form 10-Q include: our business strategy and liquidity plan, including our intention to dispose of a majority of the balance of real estate assets in the next 12 months, and our goals and plans to invest in different real estate platforms, including consideration of opportunities to act as a sponsor and co-investor in real estate mortgages, hospitality assets, and other real estate-based vehicles, diversify our investments geographically and expand our investment capital base and pursue development activities with certain REO properties; the outcome of actions we may take, or fail to take, that result in defaults of obligations that have liens or collateral interest in our commercial mortgage loan and REO properties, including our ability to cure such defaults; our plans and the anticipated timing and results relating to our actions to foreclose on defaulted mortgage loans; trends and expectations relating to the real estate and lending markets we operate in; expected amortization period of unrecognized compensation costs; that future mortgage income will remain at minimal levels; that property taxes, costs and expenses relating to REO assets and other operating expenses may increase; that we may modify existing loans and/or subordinate our first lien position on our mortgage loans to protect our collateral and maximize our opportunity for recovery; that the concentration of our current loan portfolio will not materially change until we resume significant lending activities; our sources and the sufficiency of liquidity in the next twelve months; that our financial assets do not give rise to significant interest rate risk; that we may sell whole loans or participations in loans to increase our liquidity; expectations about future derivative investments; recent trends and expectations relating to rental and hospitality and entertainment activities; that changes in our disposition strategy and related changes in classifications of such assets under GAAP could result in material impairment charges; our future liability relating to CFD and special assessment obligations; that the fair value of the collateral underlying our mortgage loans is sufficient in relation to the current carrying value of the related loans; and that we may further increase our leverage.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance. These beliefs, assumptions and expectations can change, and actual results and events may differ materially, as a result of many possible events or factors, not all of which are known to us or are within our control. These risk factors and uncertainties should be carefully considered by current and potential investors.Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements, and that could negatively affect our business include:

• that we may continue to record losses;

• that we may incur increased operating expenses;

• that a portion of our loan portfolio is comprised of non-performing and distressed assets;

• the concentration of credit risk to a particular borrower or borrower group;

• our inability to sell our current mortgage loan and REO assets and execute our business and liquidity strategy;

• our inability to resume significant mortgage loan lending activities or implement our investment strategy and grow our business;

• risks of owning real property obtained through foreclosure or other means;

• the supply of commercial mortgage loans and the resulting impact on our strategy;

• litigation;

• our inability to retain and hire consultants and employees necessary to execute our business strategy;

• the lack of a secondary market for our loans that impairs our ability to diversify our portfolio;

• lack of access to public and private capital markets;

• the inability to control the administration of mortgage loans where we hold only a participation interest;

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• the short-term nature of the loans we originate;

• risks of holding subordinated loans;

• lender due diligence risks;

• recent legislative initiatives;

• government regulation;

• failure to maintain our exemption from registration under the Investment Company Act of 1940, as amended;

• lender loan covenants that restrict our liquidity;

• our ability to secure joint venture partners on development projects;

• risks related to additional borrowings;

• that our liquidity is subject to a cash management agreement or other controlled accounts;

• restrictive covenants that are contained in debt agreements;

• the risks our borrowers are exposed to that could impair their ability to repay our loans;

• inability of our commercial borrowers to generate sufficient income from their operating properties to repay our loans;

• declines in value of our real estate collateral arising from inaccurate estimates of value due to management or appraisal errors or subsequent events;

• failure of our underwriting standards;

• that the guarantors of our mortgage loans will have insufficient assets or resources to support their guarantees;

• a decline in the fair value of our assets;

• uncertainty relating to assets valued at fair value;

• reductions in income resulting from our borrowers’ refinancing their loans at lower interest rates;

• the adverse effects on our business of increasing interest rates;

• competition;

• the inability of our borrowers to complete construction or development of the projects securing our loans;

• cost-overruns and non-completion of renovation of properties underlying rehabilitation loans we make;

• geographic concentration in our loan portfolio;

• protection of our rights as a secured lender;

• exposure to liability under lender liability laws;

• inadequate insurance coverage on the REO properties we acquire;

• hazardous substances on the REO properties we acquire;

• natural and man made disasters such as fires;

• our inability to utilize our tax net operating losses;

• a decline in economic conditions;

• reliance on key personnel;

• conflicts of interest relating to existing contractual agreements;

• complex accounting rules;

• our failure to maintain adequate internal controls;

• our ability to change our business, leverage and financing strategies without stockholder consent;

• use of liquidity to pay required preferred dividends;

• covenants relating to the issuance of preferred stock that restrict our ability to take certain actions;

• restrictions on the payment of dividends to common stockholders;

• dilution resulting from future issuances of debt and equity securities;

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• provisions in our certificate of incorporation, bylaws and Delaware law that could impede or delay an acquisition of the Company;

• the ability of JIA to successfully manage those assets described in the Advisory Agreement; and

• other factors listed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018.

Overview of the Business

We are a real estate investment and finance company focusing on the commercial, hospitality, industrial and residential real estate markets.

Our current business focus is to re-establish the Company’s access to significant investment capital in order to improve the performance of our portfolio. By increasing the level and quality of the assets in our portfolio, we believe that the Company can grow and ultimately provide its shareholders with favorable risk-adjusted returns and enhanced opportunity for liquidity.

As of September 30, 2019, we held mortgage and real estate assets with a carrying value of $117.5 million. Our REO held for sale and other REO are being marketed for disposition within the next twelve months. With cash and cash equivalents of $7.4 million at September 30, 2019 and anticipated proceeds from asset sales and third party financing, our objective is to redeploy available amounts into income-producing investments, such as mortgage loans, joint ventures and the, acquisitions of hospitality, and other attractive other real estate assets. However, our ability to implement our investment strategy in dependent on the Company’s ability to generate sufficient liquidity.

Results of Operations for the three and nine months ended September 30, 2019 and 2018

The following discussion compares historical results of operations on a GAAP basis for three and nine months ended September 30, 2019 and 2018. Unless otherwise noted, all comparative performance data included below reflects year-over-year comparisons.

Revenues (in thousands)
	Three Months Ended September 30,									Nine Months Ended September 30,
Revenues:	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
Operating property revenue	$	4,082	$	2,085	$	1,997		95.8	%	$	6,195	$	5,753	$	442		7.7	%
Mortgage loan income, net	340		709		(369		)	(52.0	)%	1,438		1,976		(538		)	(27.2	)%
Management fees, investment and other income	129		32		97			303.1	%	486		323		163			50.5	%
Total Revenue	$	4,551	$	2,826	$	1,725		61.0	%	$	8,119	$	8,052	$	67		0.8	%

Operating Property Revenue. For the three months ended September 30, 2019, operating property revenue was $4.1 million as compared to $2.1 million during the three months ended September 30, 2018, an increase of $2.0 million, or 95.8%. During the nine months ended September 30, 2019, we recorded $6.2 million in operating property revenue as compared to $5.8 million for the nine months ended September 30, 2018, an increase of $0.4 million or 7.7%. The year-over-year increase in operating property revenue is primarily attributable to the near completion of the renovation at MacArthur Place, which began during the second quarter of 2018 and was substantially completed shortly after the end of the third quarter of 2019. This was supplemented in the third quarter by the full quarter of operations at our Broadway Tower commercial office building acquired in the second quarter of 2019.

Mortgage Loan Income. For the three months ended September 30, 2019, income from mortgage loans was $0.3 million, a decrease of $0.4 million from the three months ended September 30, 2018. For the nine months ended September 30, 2019, income from mortgage loans was $1.4 million, a decrease of $0.5 million or 27.2% from the nine months ended September 30, 2018. Mortgage loan income decreased period over period due to the defaulted Broadway Tower mortgage and the payoff of a $3.0 million loan during the nine months ended September 30, 2019. Our performing mortgage loans have a weighted average interest rate of 9.8%.

Management Fees, Investment and Other Income. For the three months ended September 30, 2019, management fees, investment and other income was $0.1 million compared to $32 thousand for the corresponding period in 2018. For the nine months ended September 30, 2019, management fees, investment and other income was $0.5 million, an increase of $0.2 million, or 50.5%, from

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the nine months ended September 30, 2018. The year-over-year increase is primarily attributable to asset management fees earned on a hotel in Nyack, NY.

Costs and Expenses

Expenses, gains and losses (in thousands)
	Three Months Ended September 30,											Nine Months Ended September 30,
Expenses, gains and losses:	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Operating property direct expenses (exclusive of interest and depreciation)	$	4,703		$	2,364		$	2,339		98.9	%	$	10,710		$	6,699		$	4,011		59.9	%
Expenses for non-operating real estate owned	72			151			(79		)	(52.3	)%	246			519			(273		)	(52.6	)%
Professional fees	1,185			1,125			60			5.3	%	3,671			2,754			917			33.3	%
General and administrative expenses	2,463			1,788			675			37.8	%	5,928			5,376			552			10.3	%
Interest expense	427			775			(348		)	(44.9	)%	1,218			2,300			(1,082		)	(47.0	)%
Depreciation and amortization expense	879			281			598			212.8	%	1,470			925			545			58.9	%
Gain on disposal of assets	(223		)	(3,543		)	3,320			(93.7	)%	(244		)	(3,938		)	3,694			(93.8	)%
Provision for (recovery of) credit losses, net	2,598			—			2,598			N/A		1,463			(175		)	1,638			(936.0	)%
Unrealized loss on derivatives	39			—			39			N/A		330			—			330			N/A
Total Expenses, Gains and Losses	$	12,143		$	2,941		$	9,202		312.9	%	$	24,792		$	14,460		$	10,332		71.5	%

Operating Property Direct Expenses (exclusive of Interest and Depreciation). For the three months ended September 30, 2019, operating property direct expenses were $4.7 million, an increase of $2.3 million, or 98.9%, from $2.4 million for the three months ended September 30, 2018. For the nine months ended September 30, 2019, operating property direct expenses were $10.7 million, an increase of $4.0 million, or 59.9%, from $6.7 million for the nine months ended September 30, 2018. Such amounts are primarily related to the direct operating costs of MacArthur Place, and to a lesser extent beginning in June 2019, to Broadway Tower which we acquired through a foreclosure action in May of 2019. While revenues were negatively impacted during the MacArthur Place renovation period, operating expenses remained relatively consistent as the Company was required to retain personnel to avoid employee turnover while simultaneously incurring significant temporary operating costs during the renovation period. Broadway Tower contributed operating expenses totaling $1.2 million since its acquisition in the second quarter of 2019.

Expenses for Non-Operating Real Estate Owned. Expenses for non-operating real estate owned assets decreased 52.3% to $0.1 million for the three months ended September 30, 2019compared to $0.2 million for the corresponding period in 2018. For the nine months ended September 30, 2019, expenses for non-operating real estate owned assets were $0.2 million, a decrease of $0.3 million or 52.6%, from $0.5 million for the nine months ended September 30, 2018. The decrease in period-over-period expense is attributed to the disposition of non-operating real estate owned in prior years and lower property tax, security expenses and other holding costs incurred on currently held non-operating real estate owned.

Professional Fees. For the three months ended September 30, 2019, professional fees expense was $1.2 million, an increase of $0.1 million, or 5.3%, from $1.1 million incurred during the same period in 2018. For the nine months ended September 30, 2019 and 2018, professional fees were $3.7 million and $2.8 million, respectively, an increase of $0.9 million or 33.3%. The increase in professional fees is attributed to continued litigation surrounding the New Mexico assets, greater enforcement and recovery efforts in connection with certain defaulted loans, Hotel Fund organizational costs, and other corporate matters.

General and Administrative Expenses. General and administrative expenses were $2.5 million for the three months ended September 30, 2019 compared to $1.8 million for the corresponding period in 2018, an increase of $0.7 million or 37.8%. For the nine months ended September 30, 2019, general and administrative expenses were $5.9 million compared to $5.4 million, an increase of $0.6 million or 10.3%, for the nine months ended September 30, 2018. The increase in general and administrative

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expenses is primarily attributed to 1) severance benefits provided to Company’s previous CEO and asset management fees incurred under the terms of the Advisory Agreement with JIA which became effective August 1, 2019, offset by certain general and administrative costs absorbed or reimbursed by JIA.

Interest Expense. Interest expense was $0.4 million for the three months ended September 30, 2019, compared to $0.8 million for the corresponding period in 2018, a decrease of $0.3 million, or 44.9%. For the nine months ended September 30, 2019, interest expense was $1.2 million as compared to $2.3 million for the nine months ended September 30, 2018, a decrease of $1.1 million, or 47.0%. The year-over-year decrease is attributed primarily to the capitalization of interest costs during the renovation period of MacArthur Place in the amount of $1.1 million for the nine months ended September 30, 2019.

Depreciation and Amortization Expense. For the three months ended September 30, 2019, depreciation and amortization expense was $0.9 million compared to $0.3 million for the corresponding period in 2018. For the nine months ended September 30, 2019, depreciation and amortization expense was $1.5 million compared to $0.9 million for the nine months ended September 30, 2018, an increase of $0.5 million or 58.9%. The increase in depreciation and amortization is attributed to the substantial completion of the MacArthur Place renovation during the third quarter of 2019 and depreciation and amortization recorded following the acquisition of Broadway Tower in the second quarter of 2019.

(Gain) Loss on Disposal of Assets. During the nine months ended September 30, 2019, the Company sold four REO assets for $0.9 million resulting in a gain on sale of $0.2 million for the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2018, the Company sold REO assets (or portions thereof) for $8.1 million and $8.7 million (net of transaction costs) resulting in a total net gain on sale of $3.5 million and $3.9 million, respectively.

Provision for (Recovery of) Credit Losses. During the three months ended September 30, 2019, we recorded a provision for credit losses in the amount of $2.6 million relating to the sale of a mezzanine loan investment that was sold at a loss subsequent to quarter end, while no provision for (recovery of) credit losses was recorded during the corresponding period in 2018. During the nine months ended September 30, 2019, the provision for credit loss was offset by cash and other recoveries obtained in connection with our enforcement activities totaling $1.1 million, for a net charge of $1.5 million.

Additionally, during the third quarter of 2019, the Company received a favorable judgment against one of the New Mexico partnerships in the amount of $1.4 million for historical management fees. While this judgment amount was eliminated in consolidation, it would otherwise have the effect of reducing the amount of non-controlling interest to limited partners (but only to the extent of positive capital balances of such limited partners).

Unrealized Loss on Derivatives. During the three and nine months ended September 30, 2019, the Company recorded an unrealized loss of $39 thousand and $0.3 million, respectively, on an interest rate cap we acquired to mitigate the risk of rising interest rates based on a fair value analysis of this derivative instrument. There were no unrealized losses on this derivative during 2018.

Operating Segments

Our operating segments reflect the distinct business activities from which revenues are earned and expenses incurred that are evaluated regularly by our executive management team in assessing performance and in deciding how to allocate resources. As of and for the three and nine months ended September 30, 2019 and 2018, the Company’s reportable segments consisted of the following:

Hospitality and Entertainment Operations — Consists of revenues less direct operating expenses, depreciation and amortization relating to our hotel, spa, and food & beverage operations. This segment also reflects the carrying value of such assets and the related financing and operating obligations.

Mortgage and REO - Legacy Portfolio and Other Operations — Consists of the collection, workout and sale of new and legacy loans and REO assets, including financing of such asset sales, as well as the operating expenses (if any), carrying costs and other related expenses of such assets. This segment also includes operating properties that do not represent a strategic operating objective of the Company, such as Broadway Tower, and their rental revenue and tenant recoveries less direct property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses), depreciation and amortization from commercial real estate leasing operations, and the carrying value of such assets and the related financing and operating obligations.

Corporate and Other — Consists of our centralized general and administrative and corporate treasury activities. This segment also includes reclassifications and eliminations between the reportable operating segments and reflects the carrying value of corporate fixed assets and the related financing and operating obligations.

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A summary of the financial results for each of our operating segments during the three and nine months ended September 30, 2019 and 2018 follows (in thousands):

Hospitality and Entertainment Operations

	Three Months Ended September 30,										Nine Months Ended September 30,
	2019			% of Consolidated Total		2018			% of Consolidated Total		2019			% of Consolidated Total		2018			% of Consolidated Total
Total revenues	$	2,925		64.3	%	$	2,085		73.8	%	$	4,721		58.1	%	$	5,993		74.4	%
Operating expenses
Operating property direct expenses	3,507			74.6	%	2,364			100.0	%	9,201			85.9	%	6,699			100.0	%
Professional fees	311			26.2	%	81			7.2	%	667			18.2	%	183			6.6	%
General & administrative	251			10.2	%	234			13.1	%	893			15.1	%	856			15.9	%
Interest expense	296			69.3	%	309			39.9	%	436			35.8	%	941			40.9	%
Depreciation & amortization expense	771			87.7	%	240			85.4	%	1,256			85.4	%	761			82.3	%
Total operating expenses	5,136					3,228					12,453					9,440
Other expenses
Unrealized loss on derivatives	39			100.0	%	—			—	%	330			100.0	%	—			—	%
Total other expenses	39			1.6	%	—					330			21.3	%	—
Total costs and expenses, net	5,175			42.6	%	3,228			109.8	%	12,783			51.6	%	9,440			65.3	%
Loss before income taxes	(2,250		)	29.6	%	(1,143		)	993.9	%	(8,062		)	48.4	%	(3,447		)	53.8	%
Provision for income taxes	—					—			—	%	—					—			—	%
Net loss	(2,250		)	29.6	%	(1,143		)	993.9	%	(8,062		)	48.4	%	(3,447		)	53.8	%
Net (income) loss attributable to non-controlling interest	(397		)	44.5	%	(132		)	11.9	%	(1,050		)	78.7	%	(261		)	26.4	%
Net loss attributable to common shareholders	$	(2,647	)	25.0	%	$	(1,275	)	39.6	%	$	(9,112	)	37.8	%	$	(3,708	)	29.6	%

For the three months ended September 30, 2019 and 2018, the hospitality and entertainment operations segment revenues were $2.9 million and $2.1 million, respectively which contributed 64.3% and 73.8%, respectively, of total consolidated revenues. For the nine months ended September 30, 2019 and 2018, the hospitality and entertainment operations segment revenues were $4.7 million and $6.0 million, respectively which contributed 58.1% and 74.4%, respectively, of total consolidated revenues. The year-over-year decrease in hospitality and entertainment operations revenues is attributable to the lack of revenues produced during the renovation period at MacArthur Place which was substantially completed by the end of the third quarter of 2019. During the three and nine months ended September 30, 2019, our results were based on 54% and 33% occupancy, respectively, with an ADR of $470 and $421, respectively, and Revenue Per Available Room (“RevPAR”) of $254 and $141, respectively. For the three and nine months ended September 30, 2018, our results were based on 57% and 55% occupancy, respectively, with an Average Daily Rate (“ADR”) of $391 and $337, respectively, and RevPAR of $222 and $184, respectively. However, since our hospitality rooms were under renovation during the majority of 2019, the adjusted results based on actual rooms available during the renovation period for the nine months ended September 30, 2019 reflected occupancy of 62.5% occupancy an ADR of $421, and RevPAR of $263.

During the three and nine months ended September 30, 2019 and 2018, the hospitality and entertainment operations segment constituted the majority of our consolidated operating property direct expenses (prior to the acquisition of Broadway Tower in May 2019). The decrease in net operating income for the three and nine months ended September 30, 2019, as compared to the same period in 2018, was primarily attributed to high operating property direct expenses, which was caused by rooms out of service during the renovation project while operating expenses remained consistent year over year.

After interest expense, depreciation and amortization, the hospitality and entertainment operations segment contributed $2.3 million and $8.1 million of the total consolidated net loss for the three and nine months ended September 30, 2019, respectively. The hospitality and entertainment operations segment contributed net loss of $1.1 million and net income of $3.4 million of the total consolidated net loss from continuing operations for the three and nine months ended September 30, 2018, respectively.

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Mortgage and REO - Legacy Portfolio and Other Operations

	Three Months Ended September 30,										Nine Months Ended September 30,
	2019			% of Consolidated Total		2018			% of Consolidated Total		2019			% of Consolidated Total		2018			% of Consolidated Total
Total revenues	$	1,503		33.0	%	$	709		25.1	%	$	3,004		37.0	%	$	1,978		24.6	%
Operating expenses
Operating property direct expenses	1,196			25.4	%	—			—	%	1,509			14.1	%	—			—	%
Expenses for non-operating REO	72			100.0	%	151			100.0	%	246			100.0	%	519			100.0	%
Professional fees	384			32.4	%	575			51.1	%	1,264			34.4	%	1,391			50.5	%
General & administrative	—			—	%	1			0.1	%	1			—	%	2			—	%
Interest expense	131			30.7	%	116			15.0	%	388			31.9	%	344			15.0	%
Depreciation & amortization expense	80			9.1	%	—			—	%	130			8.8	%	—			—	%
Total operating expenses	1,863					843					3,538					2,256
Other expenses
Gain on disposal of assets, net	(223		)	100.0	%	(3,543		)	100.0	%	(244		)	—	%	(3,938		)	100.0	%
Provision for (recovery of) credit losses, net	2,598			100.0	%	—			—	%	1,463			—	%	(175		)	—	%
Total other expenses	2,375			98.4	%	(3,543		)			1,219			78.7	%	(8,051		)
Total costs and expenses, net	4,238			34.9	%	(2,700		)	(91.8	)%	4,757			19.2	%	(1,857		)	(12.8	)%
Income before income taxes	(2,735		)	36.0	%	3,409			(2964.3	)%	(1,753		)	10.5	%	3,835			(59.8	)%
Provision for income taxes	—					—			—	%	—					—			—	%
Net income (loss)	(2,735		)	36.0	%	3,409			(2964.3	)%	(1,753		)	10.5	%	3,835			(59.8	)%
Net (income) loss attributable to non-controlling interest	(496		)	55.5	%	(973		)	88.1	%	(285		)	21.3	%	(729		)	73.6	%
Net income (loss) attributable to common shareholders	$	(3,231	)	30.5	%	$	2,436		(75.7	)%	$	(2,038	)	8.4	%	$	3,106		(24.8	)%

For the three months ended September 30, 2019 and 2018, the Mortgage and REO - Legacy Portfolio and Other Operations segment revenues were $1.5 million and $0.7 million, respectively which contributed 33.0% and 25.1%, respectively, of total consolidated revenues. For the three and nine months ended September 30, 2019 and 2018 segment revenues were $3.0 million and $2.0 million which contributed 37.0% and 24.6%, respectively, of total consolidated revenues. The increase in the dollar amount of total revenues on a year-over-year basis, and as a percentage of total revenues, is attributed to the contribution of operating revenue from Broadway Tower acquired during the second quarter of 2019, offset by reduced mortgage income.

For the three months ended September 30, 2019 and 2018, the Mortgage and REO - Legacy Portfolio and Other Operations segment recorded total consolidated expenses, net of recoveries and gains of $4.2 million and $(2.7) million, respectively. For the nine months ended September 30, 2019 and 2018, the Mortgage and REO Legacy Portfolio and Other Operations segment recorded total consolidated expenses, net loss, net of recoveries and gains of $4.8 million and $(1.9) million, respectively. The year-over-year decrease in net expenses for the nine months ended September 30, 2019, as compared to the same period in 2018, was primarily due to increased guarantor recoveries in fiscal 2019, increases in professional fees relating to loan and guarantor enforcement activities, and increases in operating expenses from Broadway Tower, offset by decreased gains from the sale of REO assets.

After revenues, less interest, depreciation and amortization expenses, and provision for (recoveries of) credit losses, the Mortgage and REO Legacy Portfolio and Other Operations segment contributed net loss of $2.7 million and net income of $3.4 million for the three months ended September 30, 2019 and 2018, respectively. The Mortgage and REO - Legacy Portfolio and Other Operations segment contributed net loss of $1.8 million and net income of $3.8 million for the nine months ended September 30, 2019 and 2018, respectively. We expect our lending activities and related income to increase as available liquidity allows us to acquire our target assets.

See “Note 4 - Mortgage Loans, Net” and “Note 5 - Real Estate Held for Sale, Other Real Estate Owned, and Operating Properties” in the accompanying consolidated financial statements and Item 2. - “Real Estate Owned, Lending Activities, and Loan and Borrower Attributes” for additional information regarding our loan and REO portfolio.

F-45

Corporate and Other

	Three Months Ended September 30,										Nine Months Ended September 30,
	2019			% of Consolidated Total		2018			% of Consolidated Total		2019			% of Consolidated Total		2018			% of Consolidated Total
Total revenues	$	123		2.7	%	$	32		1.1	%	$	394		4.9	%	$	81		1.0	%
Operating expenses
Professional fees	490			41.4	%	469			41.7	%	1,740			47.4	%	1,180			42.8	%
General & administrative	2,212			89.8	%	1,553			86.9	%	5,034			84.9	%	4,518			84.0	%
Interest expense	—			—	%	350			45.2	%	394			32.3	%	1,015			44.1	%
Depreciation & amortization expense	28			3.2	%	41			14.6	%	84			5.7	%	164			17.7	%
Total operating expenses	2,730					2,413					7,252			31.2	%	6,877
Other expenses
Total costs and expenses, net	2,730			22.5	%	2,413			82.0	%	7,252			29.3	%	6,877			47.6	%
Income (loss) before income taxes	(2,607		)	34.3	%	(2,381		)	2070.4	%	(6,858		)	41.1	%	(6,796		)	106.1	%
Provision for income taxes	—					—			—	%	—					—			—	%
Net loss	(2,607		)	34.3	%	(2,381		)	2070.4	%	(6,858		)	41.1	%	(6,796		)	106.1	%
Cash dividends on series B-1 and B-2 preferred stock	(1,320		)	100.0	%	(655		)	100.0	%	(2,609		)	100.0	%	(1,894		)	100.0	%
Imputed dividends on series B-1 and B-2 preferred stock	(366		)	100.0	%	(920		)	100.0	%	(2,255		)	100.0	%	(2,651		)	100.0	%
Imputed dividends on series A preferred stock	(422		)	100.0	%	(422		)	100.0	%	(1,251		)	100.0	%	(569		)	100.0	%
Net loss attributable to common shareholders	$	(4,715	)	44.5	%	$	(4,378	)	136.1	%	$	(12,973	)	53.8	%	$	(11,910	)	95.2	%

Other than occasional, non-recurring miscellaneous revenue and management fee income, the Corporate and Other segment did not generate any other material revenues for the Company for the three and nine months ended September 30, 2019 and 2018.

For the three months ended September 30, 2019 and 2018, the Corporate and Other segment contributed $2.7 million and $2.4 million, respectively, or 22.5% and 82.0%, to total consolidated expenses. For the nine months ended September 30, 2019 and 2018, the Corporate and Other segment contributed $7.3 million and $6.9 million, respectively, or 29.3% and 47.6%, to total consolidated expenses during each period. The expenses remained relatively flat for this segment.

Real Estate Owned, Lending Activities, Loan and Borrower Attributes

Lending Activities

As of September 30, 2019, our loan portfolio consisted of four mortgage loans with a carrying value of $11.7 million. No new loans were originated during the three and nine months ended September 30, 2019, although we funded $1.9 million during nine months ended September 30, 2019 under one of our existing loan obligations. The Company participated in a mezzanine lending consortium sponsored by Juniper Bishops, LLC, in which the Company agreed to a maximum commitment of $3.9 million, of which $$2.6 million has been funded as of September 30, 2019. Since we are not the sponsor of this lending arrangement, this investment is reported under investment in unconsolidated entities in the accompanying unaudited, condensed consolidated balance sheet.

Two of our loans were performing loans with an average outstanding principal and accrued interest balance of $7.1 million. As of September 30, 2019 and December 31, 2018, the Company held two and three non-performing portfolio loans, respectively, two of which have been fully reserved and have a zero carrying value as of September 30, 2019. During nine months ended September 30, 2019, one performing loan with a principal balance of $3.0 million was repaid in full. In the second quarter of 2019, we foreclosed on all of the membership interests of Hertz Broadway, the owner of Broadway Tower, which has been recorded as an operating property following the foreclosure. Subsequent to September 30, 2019, we sold one of our mezzanine loan investments with a principal balance of $12.3 million at a discount and incurred a loss of $2.6 million, which was recorded during the nine months ended September 30, 2019.

F-46

As of September 30, 2019 and December 31, 2018, the valuation allowance was $15.3 million and $13.1 million for each period, respectively and represented 57.7% and 37.1%, respectively, of the total outstanding loan principal and interest balances.

We made mortgage loan investments and/or fundings in the amount of $2.0 million and $3.0 million during the nine months ended September 30, 2019 and 2018, respectively. During the three and nine months ended September 30, 2019, we recorded mortgage interest income of $0.3 million and $1.4 million, respectively. During the three and nine months ended September 30, 2018, we recorded mortgage interest income of $0.7 million and $2.0 million, respectively.

Geographic Diversification

As of September 30, 2019, the collateral underlying our loan portfolio was located in California, Texas, and Arizona. Unless and until we resume meaningful lending activities, our ability to diversify the geographic aspect of our loan portfolio remains significantly limited. While our lending activities have historically been focused primarily in the southwestern United States, we have no geographic limitations in our investment policy.

Interest Rate Information

Our loan portfolio includes loans that carry variable and fixed interest rates. All variable interest rate loans are indexed to the Prime Rate or the one month LIBOR. As of September 30, 2019 and December 31, 2018, the Prime Rate was 5.0% and 5.5%, respectively. As of September 30, 2019 and December 31, 2018, the one-month LIBOR was 2.0% and 2.5%, respectively.

As of September 30, 2019, we had four loans with principal and interest balances totaling $26.5 million and interest rates ranging from 9.6% to 12.0%. Of this total, two loans with principal and interest balances totaling $12.7 million and a weighted average interest rate of 12.0% were non-performing loans, both of which were fully reserved, while two loans with principal and interest balances totaling $14.3 million and a weighted average interest rate of 9.8% were performing. As of December 31, 2018, three of our six loans were performing and had a weighted average principal balance of $7.7 million and a weighted average interest rate of 9.44%.

See “Note 4 - Mortgage Loans, Net” in the accompanying condensed consolidated financial statements for additional information regarding interest rates for our loan portfolio.

Loan and Borrower Attributes

We generally classify loans into categories based on the underlying collateral’s projected end-use for purposes of identifying and managing loan concentration and associated risks. As of September 30, 2019, the original projected end-use of the collateral under our loans was classified as 54.3% residential and 45.7% commercial. As of December 31, 2018, the original projected end-use of the collateral under our loans was classified as 36.0% residential and 64.0% mixed-use.

Changes in the Portfolio Profile — Scheduled Maturities

The outstanding principal and interest balance of our loan portfolio, net of the valuation allowance, as of September 30, 2019, has scheduled maturity dates as follows (dollar amounts in thousands):

Quarter	Principal and Interest Balance			Percent		#
Matured	$	12,682		47	%	2
Q4 2019	12,345			46	%	1
Q1 2020	1,966			7	%	1
Total principal and interest	26,993			100	%	4
Less: valuation allowance	(15,279		)
Mortgage loans, net	$	11,714

Operating Properties, Real Estate Held for Sale and Other Real Estate Owned

F-47

As of September 30, 2019, we held total REO assets of $105.8 million, of which $7.4 million were held for sale, $65.1 million were held as operating properties, and $33.3 million were classified as other real estate owned. At December 31, 2018, we held total REO assets of $75.0 million, of which $7.4 million was held for sale, $33.9 million were held as operating properties and $33.7 million were classified as other real estate owned. All our REO assets are located in California, Texas, Missouri, Arizona, Minnesota, and New Mexico.

As described above, we foreclosed on a mezzanine note during the nine months ended September 30, 2019 and acquired the underlying office building and related assets and assumed related liabilities of Broadway Tower all of which were recorded at estimated fair value in accordance with GAAP. The acquired assets consist of a building, land, furniture and fixtures, operating and reserve cash, and tenant receivables totaling approximately $26.0 million. Liabilities assumed consist of trade accounts payable and accrued liabilities, and accrued interest and principal on the first mortgage loan totaling approximately $16.0 million.

In addition, during the three and nine months ended September 30, 2019, we sold three and four REO assets, respectively, for an aggregate amount of $0.9 million resulting in a gain on sale of $0.2 million. During the three and nine months ended September 30, 2018, the Company sold REO assets (or portions thereof) for $8.1 million and $8.7 million (net of transaction costs) resulting in a total net gain on sale of $3.5 million and $3.9 million, respectively.

Costs related to the development of or improvements to the Company’s real estate assets are generally capitalized, while costs and expenses related to operating, holding and maintaining our operating properties and REO assets are expensed as incurred and included in operating property direct expenses and expenses for non-operating real estate owned in the accompanying consolidated statements of operations. For the three and nine months ended September 30, 2019, these costs and expenses were $4.8 million and $11.0 million, respectively. For the three and nine months ended September 30, 2018, these costs and expenses were $2.5 million and $7.2 million, respectively. Cash outlays for capitalized development costs and real estate investments totaled $13.4 million and $7.2 million during the nine months ended September 30, 2019 and 2018, respectively, which related primarily to the MacArthur Place renovation and the acquisition of Broadway Tower.

The nature and extent of future costs for our REO properties depends on the holding period of such assets, the level of development undertaken, our projected return on such holdings, our ability to raise funds required to develop such properties, the number of additional foreclosures, and other factors. While substantially all our assets are generally available for sale, we continue to evaluate various alternatives for the ultimate disposition of these investments, including partial or complete development of the properties prior to sale or disposal of the properties on an as-is basis.

Variable Interest Entities

L’Auberge de Sonoma Hotel Fund

As of September 30, 2019, the Hotel Fund has sold Preferred Interests totaling $25 million, of which $22.5 million is included in non-controlling interests in the accompanying consolidated balance sheets, and $2.5 million represents the Company’s preferred interest in the Hotel Fund. Additionally, as of September 30, 2019, the Company held a common interest in the Hotel Fund of $16.0 million relating to advances for operating shortfalls, payment of preferred distributions and other advances. The Hotel Fund made Preferred Distributions of $1.0 million during the nine months ended September 30, 2019. Based on (i) the structure of the Hotel Fund, (ii) our ability to direct the activities that most significantly impact the economic performance of the Hotel Fund, and (iii) the risk of absorbing losses or rights to receive benefits that could be potentially significant to the Hotel Fund, the Company is deemed to be the primary beneficiary of the Hotel Fund, and accordingly we have consolidated and expect to continue to consolidate the Hotel Fund in our consolidated financial statements.

Important Relationships between Capital Resources and Results of Operations

Valuation Allowance and Fair Value Measurement of Loans and Real Estate Held for Sale and Other REO

We perform a valuation analysis of our loans, REO held for sale, other REO, and equity investments not less frequently than on a quarterly basis.

In determining fair value, we have adopted applicable accounting guidance which establishes a framework for measuring fair value in accordance with GAAP, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. This accounting guidance applies whenever other accounting standards require or permit fair value measurement.

F-48

Our fair value measurement is based on the highest and best use of each property which is generally consistent with our current use for each property subject to valuation. In addition, our assumptions are established based on assumptions that we believe market participants for those assets would also use. During the three and nine months ended September 30, 2019 and 2018, we performed both a macro analysis of market trends and economic estimates as well as a detailed analysis on selected significant loan and REO assets. In addition, our fair value analysis includes a consideration of management’s pricing strategy in disposing of such assets.

Valuation Conclusions

Based on the results of our evaluation and analysis, we recorded a provision for credit losses on our loan portfolio totaling $2.6 million (based on the subsequent sale of a loan at a loss) during the three months ended September 30, 2019 and none during the corresponding period in 2018. Other than the provision for credit loss recorded described above, during the nine months ended September 30, 2019 and 2018 we recorded offsetting cash recoveries of credit losses of $1.1 million and $0.2 million, respectively. Additionally, we recorded a loss of $39.0 thousand and $0.3 million during the three and nine months ended September 30, 2019, respectively, pertaining to a fair value adjustment for an interest rate cap.

As of September 30, 2019 and December 31, 2018, the valuation allowance was $15.3 million and $13.1 million, respectively, which represented 57.7% and 37.1%, respectively, of the total outstanding loan principal and accrued interest balances as of such dates.

With the existing valuation allowance recorded on our loans and impairments recorded on our REO assets as of September 30, 2019, we believe that, as of that date, the fair value of our loans and REO is adequate in relation to the net carrying value of the related assets and that no additional valuation allowance or impairment is considered necessary. We will continue to evaluate our loan and REO assets to determine the adequacy and appropriateness of the valuation allowance and impairment balances. Depending on market conditions, such evaluations may yield materially different values and potentially increase or decrease the valuation allowance for loans or impairment charges for REO assets.

Current and Anticipated Borrowings

Broadway Tower Note

As described above, in the second quarter of 2019, we acquired 100% of the membership interests of Hertz Broadway, the owner of Broadway Tower, thereby assuming its assets and liabilities, including a $13.2 million mortgage note payable secured by Broadway Tower. In a related transaction, a subsidiary of the Company purchased this note. Since we own both the entity that owns the first mortgage note, as well as the entity that owes this obligation, the first mortgage loan and related interest have been eliminated in consolidation in the accompanying consolidated financial statements. The purchase of the first mortgage note was funded partially with an $11.0 million loan under a master repurchase agreement with Chase Funding (the “Chase Funding Master Repurchase Agreement”). The Chase Funding Master Repurchase Agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.

Exchange Notes

In April 2014, we completed an offering of a five-year, 4%, unsecured notes to certain of our shareholders in exchange for common stock held by such shareholders at an exchange price of $8.02 per share (“Exchange Offering”). Upon completion of the Exchange Offering, we issued Exchange Offering notes (“EO Notes”) with a face value of $10.2 million. The EO Notes matured and were repaid in full on April 28, 2019.

New Mexico Land Purchase Financing

As of September 30, 2019, the Company had an outstanding note payable in the amount of $5.9 million secured by certain real estate located in New Mexico with a carrying value of $6.8 million. The note bears interest at the WSJ Prime Rate plus 3% and requires interest only payments due annually on December 31 of each year with the principal balance and any accrued unpaid interest due upon the earlier of 1) December 31, 2019, or 2) sale of the underlying collateral property. The note may be prepaid in whole or in part without penalty, and includes certain maturity extension provisions which the Company may choose to exercise.

F-49

Hotel Acquisition and Construction Loan

In connection with the acquisition of MacArthur Place, the Company borrowed $32.3 million from MidFirst Bank. The loan has an initial term of three years and, subject to certain conditions and the payment of certain fees, may be extended by the Company for two (2) one-year periods. The loan requires interest-only payments during the initial three-year term and bears floating interest equal to the 30-day LIBOR rate plus 3.54% subject to certain adjustments. During the nine months ended September 30, 2019, the loan was modified to, among other things, increase the total loan facility to $37.0 million, and increase our equity requirement from $17.4 million to $27.7 million which was satisfied in the first quarter of 2019.

The MacArthur Loan is secured by a deed of trust on all MacArthur Place real property and improvements, and a security interest in all furniture, fixtures and equipment, licenses and permits, and MacArthur Place-related revenues. The Company has provided a construction completion guaranty which will be released upon payment of all project costs and receipt of a certificate of occupancy. In addition, the Company has provided a loan repayment guaranty equal to 50% of the MacArthur Loan outstanding principal along with a guaranty of interest and operating deficits, as well as other customary non-recourse carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum tangible net worth of $50.0 million and minimum liquidity of $5.0 million throughout the term of the loan. The loan included a provision requiring substantial completion of the project by June 30, 2019 which the lender agreed to waive and extend to September 1, 2019, and which the Company achieved. In addition, MacArthur Place is required to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

Hotel Fund Offering

In November 2017, the Company sponsored and commenced the offering of up to $25.0 million of Preferred Interests in the Hotel Fund. The Company made initial contributions of $17.8 million for its common member interest in the Hotel Fund. The net proceeds of this offering were used (i) to redeem the Company’s initial contributions to the Hotel Fund and (ii) to partially fund the renovations to MacArthur Place.

Purchasers of the Preferred Interests (the “Preferred Members”) are entitled to a preferred distribution, payable monthly, accruing at a rate of 7.0% per annum on invested capital, cumulative and non-compounding (the “Preferred Distribution”). If the Fund has insufficient operating cash flow to pay any or all of the Preferred Distribution in a given month, the Company is obligated to provide the funds necessary to fund the full payment of the Preferred Distribution for such month, such payments to be treated as an additional capital contribution by the Company. Upon the refinance or sale of all or a portion of the hotel, the Preferred Members may be entitled to receive certain additional preferred distributions (the “Additional Preferred Distribution”) that will result in an overall return of up to 12.0% on the Preferred Interests. We have sold Preferred Interests to unrelated outside investors totaling $22.5 million, which when coupled with the Company’s Preferred Interests of $2.5 million, the Hotel Fund has met its funding goal of $25.0 million.

Other Potential Borrowings and Borrowing Limitations

Our investment policy, the assets in our portfolio and the decision to utilize leverage are periodically reviewed by our board of directors as part of their oversight of our operations. We may employ leverage, to the extent available and permitted, through borrowings to finance our assets or operations, to fund the origination and acquisition of our target assets and to increase potential returns to our shareholders. Although we are not required to maintain any particular leverage ratio, the amount of leverage we will deploy for particular target assets will depend upon our assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the target assets in our portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, including hedges, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope, and volatility of interest rates, the credit quality of our target assets, the collateral underlying our target assets, and our outlook for asset spreads relative to the LIBOR curve. Our charter and bylaws do not limit the amount of indebtedness we can incur, and our board of directors has discretion to deviate from or change our indebtedness policy at any time. We intend to use leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates.

We may not undertake certain actions without the consent of the holders of a certain percentage of the shares of our Series B Preferred Stock outstanding, including entering into major contracts, entering into new lines of business, or selling REO assets other than within certain defined parameters. Further, certain actions, including breaching any of our material obligations to the holders of Series B Preferred Stock, could require us to redeem the Series B Preferred Stock. In addition, future financing arrangements may include other restrictions that limit our ability to secure additional financing.

F-50

The holders of our Series B Preferred Stock each have considerable influence over our corporate affairs which makes it difficult or impossible to enter into certain transactions without their consent.

Contractual Obligations

In addition to our existing indebtedness described elsewhere in this Form 10-Q, a summary of our significant outstanding contractual obligations that existed at September 30, 2019 follows:

Preferred Stock Requirements

During 2014, the Company issued 8.2 million shares of the Company’s Series B-1 and B-2 Preferred Stock to the Series B Investors in exchange for $26.4 million. During 2018, the Company issued 2,352,941 shares of the Company’s Series B-3 Preferred Stock in exchange for $8.0 million. During the three months ended September 30, 2019, the Company issued 1,875,000 million shares of the Company’s Series B-4 Preferred Stock in exchange for $6.0 million. Except for certain voting, transfer, dividend, and redemption rights, the rights and obligations of holders of the Series B Preferred Stock are substantially the same.

In addition to various other rights and preferences belonging to the holders of the Series B Preferred Stock, the following provides a summary of certain financial obligations relating to the Series B Preferred Stock:

• Dividends. Dividends on the Series B Preferred Stock are cumulative and accrue from the issue date and compound quarterly at the rate of 8% for Series B-1 and B-2 Preferred Stock and 5.65% for the Series B-3 and B-4 Preferred Stock, payable quarterly in arrears. Subject to certain dividend rights and restrictions, no dividend may be paid on any capital stock of the Company during any fiscal year unless all accrued dividends on the Series B Preferred Stock have been paid in full, except for dividends on shares of voting Common Stock. In the event that any dividends are declared with respect to the voting Common Stock or any junior ranking securities, the holders of the Series B Preferred Stock are entitled to receive as additional dividends the additional dividend amount. During the nine months ended September 30, 2019 and 2018, we paid dividends on the Series B Preferred Stock of $2.0 million and $1.9 million, respectively.

• Redemption upon Demand. At any time after July 24, 2020 for the Series B-1 and B-2 Preferred Stock, after February 9, 2023 for the Series B-3 Preferred Stock, and after September 25, 2024 for the Series B-4 Preferred Stock, each holder of Series B Preferred Stock may require the Company to redeem, out of legally available funds, the shares of Series B Preferred Stock held by such holder at the a price (the “Redemption Price”) equal to the greater of (i) 150% of the sum of the original price per share of the Series B-1 and B-2 Preferred Stock, and 145% of the sum of the original price per share of the Series B-3 and B-4 Preferred Stock, plus all accrued and unpaid dividends or (ii) the sum of the tangible book value of the Company per share of voting Common Stock plus all accrued and unpaid dividends, as of the date of redemption. As of September 30, 2019: (i) the Redemption Price for the Series B-1 and B-2 Stock would be $39.6 million (a redemption premium of $13.2 million), (ii) the Redemption Price for the Series B-3 Preferred Stock would be $11.6 million (a redemption premium of $3.6 million), and (iii) the Redemption Price for the Series B-4 Preferred Stock would be $8.7 million (a redemption premium of $2.7 million). In accordance with applicable accounting standards, we have elected to amortize the redemption premiums using the effective interest method as an imputed dividend over the holding term of the preferred stock. During the nine months ended September 30, 2019 and 2018, we recorded amortization of the redemption premium of $2.3 million and $2.7 million, respectively, as a deemed dividend.

• Required Liquidation. If at any time we are not in compliance with certain of our obligations to the holders of the Series B Preferred Stock and we fail to pay (i) full dividends on the Series B Preferred Stock for two consecutive fiscal quarters or (ii) the Redemption Price within 180 days following the later of (x) demand therefore resulting from such non-compliance and (y) July 24, 2020 for the Series B-1 and B-2 Preferred Stock, February 9, 2023 for the Series B-3 Preferred Stock, and September 25, 2024 for the Series B-4 Preferred Stock, unless a certain percentage of the holders of the Series B Preferred Stock elect otherwise, we will be required to use our best efforts to commence a liquidation of the Company. In addition, the default by the Company or any of its subsidiaries under one or more debt agreements that remains uncured for a period of thirty (30) days entitles the Series B Investors to accelerate repayment of the Redemption Price.

Interim CEO Arrangement

During the third quarter of 2019,, the Company entered into a Termination of Employment Agreement, Release and Additional Compensation Agreement with Mr. Bain, the Company’s former Chairman of the Board and Chief Executive Officer (the “Bain Termination Agreement”) as well as certain other agreements. The material terms of these agreements are summarized below.

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1) On July 30, 2019, the Company entered into a Consulting Services Agreement with ITH Partners, LLC, a Nevada limited liability company, pursuant to which ITH agreed to provide certain consulting services to the Company for a ninety (90) day period commencing effective as of July 25, 2019, subject to automatic thirty (30) day renewals unless earlier terminated by the parties as provided therein. Mr. Bain is the Managing Director of ITH. Pursuant to the ITH Consulting Services Agreement, Mr. Bain was appointed to fill a vacancy on the Board of Directors of the Company (created when Mr. Bain’s employment terminated and he stepped down from the Board of Directors) and served as interim Co-Chairman and Chief Executive Officer of the Company until November 1, 2019. The ITH Consulting Services Agreement imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company agreed to pay ITH a monthly consulting fee of $30,000 commencing August 1, 2019. The Company elected to terminate this agreement effective October 31, 2019;

2) Mr. Bain received a cash bonus of $0.6 million for his 2018 services (which was paid during the nine months ended September 30, 2019) and $0.35 million for his 2019 services, to be paid no later than March 31, 2020 (which has been accrued in the accompanying condensed consolidated financial statement in general and administrative expenses);

3) Mr. Bain is entitled to receive two payments of $0.25 million each by no later than January 31, 2020 and January 31, 2021, respectively;

4) Mr. Bain is entitled to receive a LAPF, as calculated in accordance with his prior employment agreement, in connection with the disposition of the Company’s interests in the assets of the New Mexico Assets provided that such disposition occurs prior to December 31, 2022;

5) On July 30, 2019, the Company and ITH also entered into the New Mexico Asset Consulting Agreement pursuant to which ITH agreed to provide certain consulting services to the Company with respect to the New Mexico Asset for a period expiring on the earlier to occur of (a) consummation of the sale of all or substantially all of the New Mexico Asset and (b) December 31, 2022, unless such agreement is earlier terminated by the parties as provided therein. During the term of the New Mexico Asset Consulting Agreement, Mr. Bain is obligated to report to the Company’s Board of Directors and will serve as president of various corporations that serve as general partner of those entities that own the New Mexico Asset. The agreement also imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company has agreed to pay ITH a base monthly consulting fee of $5,000 commencing August 1, 2019, and an incentive bonus in the event that the Net Cash received from the sale of the New Mexico Asset exceeds certain minimum thresholds, after the payment of various reimbursements and expenses. ; and

6) All unvested equity awards and deferred compensation benefits granted to Mr. Bain were vested.

During the three months ended September 30, 2019, the Company paid Mr. Bain $83 thousand, net of certain withholdings, under the ITH Consulting Services Agreement and $15 thousand under the New Mexico Asset Consulting Agreement.

Under the terms of his employment agreement that expired on July 24, 2019, Mr. Bain is entitled to, among other things, legacy fee payments derived from the value of the disposition of certain legacy assets held by the Company as of December 31, 2010, if such assets are sold at values in excess of 110% of their carrying value as of December 31, 2010. Mr. Bain earned legacy fees of $0.1 million during the three and nine months ended September 30, 2019, and $35.0 thousand during the three and nine months ended September 30, 2018.

Juniper Consulting Agreements

Juniper Capital Partners, LLC and Related Entities

In July 2014, the Company and JCP Realty entered into a consulting services agreement (the “JCP Consulting Agreement”) pursuant to which JCP Realty agreed to perform various services for the Company, including, but not limited to, (a) advising the Company with respect to identifying, structuring, and analyzing investment opportunities, and (b) assisting the Company in managing and liquidating assets, including non-performing assets. Our director, Jay Wolf, is the Managing Member of Juniper Capital Partners, the parent company of JCP Realty. The initial term of the Consulting Agreement was three years and was automatically renewable for an additional two years unless notice of termination was provided by either party. The Company and JCP entered into an amendment of the JCP Consulting Agreement dated October 17, 2017 pursuant to which: (i) the term was extended for two years that ended on July 24, 2019; (ii) the annual base consulting fee was reduced from $0.6 million to $0.5 million (subject to possible upward adjustment based on an annual review by our board of directors); and (iii) JCP is entitled to receive an origination fee of up to 1.25% on any loans or investments in real estate, preferred equity or mezzanine securities that are originated or identified

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by JCP (subject to a reduced fee based on the increasing size of the loan or investment). JCP is also entitled to legacy fee payments derived from the disposition of certain assets held by the Company as of December 31, 2010 to persons or opportunities arising through the efforts of JCP equal to 5.5% of the positive difference derived by subtracting (i) 110% of our December 31, 2010 valuation mark of that asset from (ii) the gross sales proceeds (on a legacy asset by asset basis without any offset for losses realized on any individual asset sales). The consulting services agreement terminated on July 24, 2019. During each of the nine months ended September 30, 2019 and 2018, we incurred base consulting fees to JCP of $0.2 million and $0.3 million, respectively. JCP earned legacy fees of none and $0.1 million during the three and nine months ended September 30, 2019 and, none and $0.2 million during the three and nine months ended September 30, 2018. The JCP Consulting Agreement was terminated effective July 14, 2019.

JIA Asset Management Agreement

On August 14, 2019, the Company entered into a non-discretionary investment advisory agreement (the “Advisory Agreement”) with Juniper Investment Advisors, LLC, a Delaware limited liability company (“JIA”), with an effective commencement date of August 1, 2019, pursuant to which JIA will manage certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real-estate owned properties. Under the terms of the Advisory Agreement, the Company will pay JIA a management fees ranging from 1.0% to 1.5% of the net asset value of certain assets under management, as well as a performance fee equal to 20% of the net profits from those assets upon disposition after the Company has received an annualized 7% return on its investment from those assets and recovery of the Company’s basis in such assets. In connection with the Advisory Agreement, certain employees of the Company have transitioned to become employees of JIA, and JIA will also sublet a portion of the Company’s office space. During the three and nine months ended September 30, 2019, we incurred base consulting fees to JIA of $52 thousand.

Jay Wolf, a director of the Company, is one of the owners of JIA and Juniper Capital Partners, LLC, a Delaware limited liability company, the sole member of Juniper NVM, LLC, a Delaware limited liability company (“JNVM”) and the manager of JCP Realty Partners, LLC, a Delaware limited liability company (“JCP Realty”). JCP Realty and JNVM hold shares of the Company’s the Series B-1 Preferred Stock.

Off-Balance Sheet Arrangements

General

We have equity interests in a number of consolidated joint ventures and limited partnerships. Most of the joint ventures and partnerships in which we have an interest are involved in the ownership and/or development of real estate. A venture or partnership will fund capital requirements or operational needs with cash from operations or financing proceeds, if possible. If additional capital is deemed necessary, a venture or partnership may request a contribution from the partners, and we will evaluate such request.

The Company entered into lending facilities with certain consolidated partnerships to collectively loan up to $5.0 million to cover certain operating and capital expenditures. As of September 30, 2019, the total principal advanced under this facility was $5.0 million. The loans under this facility earn interest at annual rates ranging from the JP Morgan Chase Prime rate plus 2.0% (7.50% at September 30, 2019) to 8.0% and have maturity dates which are the earliest to occur of 1) the date of transfer of the partnership’s real estate assets, 2) the date on which the current general partner resigns, withdraws or is removed as general partner, or 3) July 31, 2018. The promissory notes received under this lending facility are presently in default and the Company is exploring its enforcement options. The promissory notes are cross collateralized and secured by real estate and other assets owned by such partnerships. These promissory notes and all related accrued interest receivable have been eliminated in consolidation.

Debt Guarantees

In certain instances, we have provided “non-recourse carve-out guarantees” on certain non-recourse loans to our subsidiaries. Certain of these loans have variable interest rates, which create exposure in the form of market risk due to interest rate changes. We have agreed to provide a construction completion guaranty in connection with the MacArthur Loan with respect to the MacArthur Place renovation project which will be released upon payment of all project costs and receipt of a certificate of occupancy. In addition, we provided a loan repayment guaranty of 50% of the MacArthur Loan outstanding loan principal and accrued unpaid interest and hotel operating expenses, as well as other customary carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum tangible net worth of $50.0 million and minimum liquidity of $5.0 million throughout the term of the loan.

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Office Lease

The Company’s current office lease term ends on September 30, 2022. The lease commits the Company to rents totaling $1.4 million over the five year term, net of certain concessions granted. In connection with the JIA Advisory Agreement, the Company executed a month-to-month sublease with JIA for approximately one-third of Company office space occupied by JIA employees.

Critical Accounting Policies

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. As of September 30, 2019, there have been no significant changes in our critical accounting policies from December 31, 2018, except as disclosed in Note 2 of the unaudited condensed consolidated financial statements included in this Form 10-Q.

Liquidity and Capital Resources

We require liquidity and capital resources for capitalized costs, expenses and general working capital needs, including maintenance, development costs and capital expenditures for our operating properties and non-operating REO assets, professional fees, general and administrative operating costs, loan enforcement costs, costs on borrowings, debt service payments on borrowings, dividends or distributions to preferred and/or common shareholders, distributions to non-controlling interests, to repurchase treasury stock, other costs and expenses, as well as to acquire our target assets. We expect our primary sources of liquidity over the next twelve months to consist of our proceeds from the disposition of our existing REO assets and loan assets,, proceeds from borrowings and equity issuances, current cash, mezzanine and mortgage loan interest income, and revenues from ownership or management of hotels. To the extent there is a shortfall in available cash, we would likely seek to reduce general and administrative costs, scale back projected investing activity costs, sell certain assets below our current asking prices, and/or seek possible additional financing. To the extent that we have excess liquidity at our disposal, we expect to use a portion of such proceeds for new investments in our target assets. However, the extent and amount of such investment is contingent on numerous factors outside of our control.

As of September 30, 2019, we had cash and cash equivalents of $7.4 million, as well as REO held for sale of $7.4 million and other REO assets of $33.3 million which, while not technically classified as held for sale, are generally available for sale. During the three months ended September 30, 2019, a previous court-imposed stay over our ability to sell certain assets was lifted. During the nine months ended September 30, 2019 we made construction draws on our MidFirst Loan in the amount $14.8 million, of which $13.7 million represented renovation cost and operating draws and $1.1 million represented draws against the interest reserve on the loan. As of September 30, 2019, we have sold the entire $22.5 million in Preferred Interests to unrelated outside investors in the Hotel Fund, with the Company’s Preferred Interests totaling $2.5 million. Subsequent to September 30, 2019, we sold a $12.3 million mezzanine loan at a discount and incurred a loss of $2.6 million, which was recorded during the nine months ended September 30, 2019.

Under the terms of our Second Amended Certificate of Designation, at any time after July 24, 2020, each holder of Series B-1 and B-2 Preferred Stock may require the Company to redeem, out of legally available funds, the shares of Series B-1 and B-2 Preferred Stock held by such holder at the a price (the “Redemption Price”) equal to the greater of (i) 150% of the sum of the original price per share of the Series B-1 and B-2 Preferred Stock plus all accrued and unpaid dividends or (ii) the sum of the tangible book value of the Company per share of voting Common Stock plus all accrued and unpaid dividends, as of the date of redemption. Based on the initial Preferred Investment amount, the Redemption Price would presently be approximately $42.2 million. We may seek to extend the redemption period and otherwise modify the redemption provisions relating to these shares, although there is no assurance we will be successful in doing so on any terms or at terms favorable to us.

As previously described, during the nine months ended September 30, 2019, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by Broadway Tower. The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding and the balance using Company funds. The Chase Funding master repurchase agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.

When our required cash uses are met, we expect to redeploy excess proceeds, if any, to acquire our target assets, which we expect will generate periodic liquidity from mortgage loan interest payments and cash flows from dispositions of these assets through sales. If we are unable to achieve our projected sources of liquidity from the sources anticipated above, we would be unable to purchase the desired level of target assets and it is unlikely that we would be able to meet our investment income projections.

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Our requirements for and sources of liquidity and capital resources are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2018. Except for the new Chase Funding Master Repurchase Agreement that matures in May 2020, there have been no material changes to our requirements for liquidity as of the three and nine months ended September 30, 2019. However, with the maturity dates of certain indebtedness through June 2020, and the redemption provisions of the Series B-1 and B-2 Preferred Stock in July 2020, the combination of these factors give rise to substantial doubt about the Company’s ability to continue as a going concern for a period beyond 12 months from the date of this filing.

Cash Flows

Cash Used In Operating Activities.

Cash used in operating activities was $12.7 million and $10.4 million for the nine months ended September 30, 2019 and 2018, respectively. Cash from operating activities includes the cash generated from hospitality income, management fees, mortgage interest and investment and other income, offset by amounts paid for operating expenses for operating properties, real estate owned, professional fees, general and administrative costs, funding of other receivables, interest on borrowings and litigation settlement payments and related costs. The decrease in cash used in operating activities from 2018 to 2019 is primarily attributed to various changes in operating assets and liabilities.

Cash Used In Investing Activities.

Net cash used in investing activities was $13.4 million and $1.5 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in cash used in investing activities is attributed primarily to increased investments in operating properties and capitalized REO costs. Proceeds received from the sale of REO assets and mortgage loans totaled $0.9 million and $8.7 million for the nine months ended September 30, 2019 and 2018, respectively. Investments in operating properties totaled $13.4 million during the nine months ended September 30, 2019 compared to $7.2 million for the same period in 2018.

Cash Provided By Financing Activities.

Net cash provided by financing activities was $11.6 million and $36.6 million for the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019, we received proceeds from debt issuance of $13.7 million. During nine months ended September 30, 2019 and 2018, we received proceeds from Hotel Fund contributions of $7.5 million and $9.8 million. During the nine months ended September 30, 2019, we used $1.0 million for the purchase of treasury stock and repaid $10.2 million in notes payable. We also made dividend payments of $3.2 million and $1.9 million during the nine months ended September 30, 2019 and 2018, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2019. That evaluation did not identify any changes in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, beginning January 1, 2019, we implemented ASC 842 and related changes to our processes related to identification of leases, calculation of right-of-use assets and lease liabilities and processes for gathering information for disclosures.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our internal control over financial reporting is a process

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designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Also, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of our internal control over financial reporting as of September 30, 2019, utilizing the 2013 framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on their assessment, we determined that the Company’s internal control over financial reporting was effective as of September 30, 2019.

This report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting since the Company, as a smaller reporting company under the rules of the SEC, is not required to include such report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS.

The status of our legal proceedings is provided in Note 13 - Commitments and Contingencies of the accompanying unaudited condensed consolidated financial statements and is incorporated herein by reference.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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Exhibit Index

Exhibit No.	Description of Document
3.1	Certificate of Incorporation of IMH Financial Corporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on August 23, 2010 and incorporated herein by reference).
3.1.1	Certificate of Correction of Certificate of Incorporation of IMH Financial Corporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 20, 2013 and incorporated herein by reference).
3.2	Third Amended and Restated Bylaws of IMH Financial Corporation (filed as Exhibit 3.2 to Current Report on Form 8-K filed on July 29, 2014 and incorporated herein by reference).
3.2.1	First Amendment to the Third Amended and Restated Bylaws of IMH Financial Corporation (filed as Exhibit 3.2 to Current Report on Form 8-K filed on February 12, 2018 and incorporated herein by reference).
3.3	Second Amended and Restated Certificate of Designation of Series B-1 Cumulative Convertible Preferred Stock, Series B-2 Cumulative Convertible Preferred Stock and Series B-3 Cumulative Convertible Preferred Stock (filed as Exhibit 3.1 to Current Report on Form 8-K on February 12, 2018 and incorporated herein by reference).
3.4	Certificate of Designation of Series B-4 Cumulative Convertible Preferred Stock of IMH Financial Corporation (filed as Exhibit 3.1 to Current Report on Form 8-K on September 27, 2019 and incorporated herein by reference to the filing).
4.1	Certificate of Designation of Series A Senior Perpetual Preferred Stock (filed as Exhibit 3.1 to Current Report on Form 8-K filed on June 4, 2018 and incorporated herein by reference to the filing).
10.1	Termination of Employment Agreement, Release and Additional Compensation Agreement between Lawrence D. Bain and IMH Financial Corporation, entered into as of April 19, 2019 (filed as Exhibit 10.33 to Quarterly Report on Form 10-Q on May 15, 2019 and incorporated herein by reference to the filing).
10.2	Chief Executive Officer Executive Employment Agreement between Chadwick Parson and IMH Financial Corporation, entered into as of August 30, 2019 (filed as Exhibit 10.1 to Current Report on Form 8-K on September 9, 2019 and incorporated herein by reference to the filing).
10.3	Second Amended and Restated Investors’ Rights Agreement by and among IMH Financial Corporation, JCP Realty Partners, LLC, Juniper NVM, LLC and JPMorgan Chase Funding, Inc. entered into on September 25, 2019 (filed as Exhibit 4.1 to Current Report on Form 8-K on September 27, 2019 and incorporated herein by reference to the filing).
10.4	Series B-4 Cumulative Convertible Preferred Stock Subscription Agreement between JPMorgan Chase Funding, Inc. and IMH Financial Corporation entered into on September 25, 2019 (filed as Exhibit 10.1 to Current Report on Form 8-K on September 27, 2019 and incorporated herein by reference to the filing).
10.5	Third Amended and Restated Investment Agreement by and among IMH Financial Corporation, Juniper NVM, LLC, JCP Realty Partners, LLC and JPMorgan Chase Funding, Inc. entered into on September 25, 2019 (filed as Exhibit 10.2 to Current Report on Form 8-K on September 27, 2019).
10.6*	New Mexico Asset Consulting Agreement by and between IMH Financial Corporation and ITH Partners, LLC dated as of July 30, 2019.
31.1*	Certification of Chief Executive Officer of IMH Financial Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer of IMH Financial Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.2*†	Certification of Chief Executive Officer and Chief Financial Officer of IMH Financial Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Filed herewith.
†	This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:	November 14, 2019	IMH FINANCIAL CORPORATION
		By:	/s/ Samuel J. Montes
			Samuel J. Montes
			Chief Financial Officer

KNOW ALL MEN BY THESE PRESENTS, that Chadwick Parson, whose signature appears below constitutes and appoints Samuel J. Montes his true and lawful attorney-in-fact and agent, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Chadwick Parson	Chief Executive Officer and Chairman	November 14, 2019
Chadwick Parson	(Principal Executive Officer)
/s/ Samuel J. Montes	Chief Financial Officer (Principal Financial Officer	November 14, 2019
Samuel J. Montes	and Principal AccountingOfficer)

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EX-10.6

CONSULTING SERVICES AGREEMENT

(ITH Partners, LLC)

THIS CONSULTING SERVICES AGREEMENT (this “Agreement”) is entered into effective as of the 25th day of July, 2019 (the “Effective Date”) by and between ITH PARTNERS, LLC, a Delaware limited liability company (“Consultant”), and IMH FINANCIAL CORPORATION, a Delaware corporation (together with its subsidiaries, the “IMHFC”).

The parties hereto agree as follows:

1.Engagement.

1.1Term. As of the Effective Date, IMHFC engages the Consultant, and the Consultant accepts such engagement, upon the terms and conditions hereinafter set forth, commencing on the Effective Date and expiring on the earliest to occur of (a) consummation of the sale of all or substantially all of the New Mexico Asset (as defined in Section 1.2 below) and (b) December 31, 2022, unless earlier terminated pursuant to the terms of this Agreement (the “Term”).

1.2New Mexico Asset. As used in this Agreement, the term “New Mexico Asset” shall mean that certain real property consisting of approximately 13,064 acres located in Sandoval County, New Mexico, and related water interests.

2.Consulting Services.

2.1Included Services. The Consultant shall perform consulting services for the benefit of IMHFC, as more particularly set forth on Exhibit A attached hereto (the “Consulting Services”), and such other services as IMHFC and the Consultant may mutually agree upon in writing from time to time after the Effective Date. The Consultant shall perform no other services other than the Consulting Services except as agreed in writing by IMHFC.

2.2Officer Activities. The Consultant has been appointed to, and shall continue throughout the Term to, serve as the president of the corporations listed on Exhibit B (each, a “Corporation”). At the end of the Term, or upon the earlier termination of this Agreement, or upon the earlier written request of IMHFC, the Consultant shall resign as the president of each Corporation, effective immediately.

3.Reporting; Time Commitment.

3.1Reporting. The Consultant shall report directly to the Chief Executive Officer of IMHFC, and if there is no acting Chief Executive Officer, to the Board of Directors of IMHFC (the “Board”).

3.2Time Commitment. During the Term, the Consultant shall devote such business time, energy and skill as is reasonably necessary to perform the Consulting Services in accordance with this Agreement. Consultant may continue with the Consultant’s other pre-existing consulting and other assignments with third parties, including its work with Juniper Capital LLC and its affiliates (“Juniper”) and take on new consulting and other assignments for Juniper or other third parties; provided, however, the Consultant may not take on new consulting or other assignments for Juniper or third parties to the extent such new consulting and other assignments: (i) present current conflicts of interest with the Consulting Services, (ii) are reasonably likely to present future conflicts of interest with

Note: certain information in this exhibit has been redacted because, in the opinion of management, such information a) is immaterial to the overall terms of this agreement and b) would be competitively harmful if publicly disclosed.

the Consulting Services, or (iii) based upon the scope of work anticipated at the time of the new assignment, would be reasonably likely to prevent the Consultant from the timely delivery of the Consulting Services to IMHFC. The existence of any matter described in (i), (ii) or (iii) above (a “Conflict”) shall be determined by IMHFC’s General Counsel, in his reasonable discretion. If a Conflict is identified, such Conflict shall be referred to IMHFC’s Audit Committee. The decision of the Audit Committee shall be final with respect to such Conflict.

IMHFC expressly acknowledges that Consultant may continue his work with Juniper and that, except as otherwise expressly set forth in this Section 3.2, such work shall not constitute a breach of this Agreement or usurpation of any IMHFC corporate opportunity, and also except as otherwise expressly set forth in this Section 3.2, such work is expressly authorized and approved by IMHFC

4.Representations, Warranties and Covenants of the Consultant. The Consultant represents, warrants and covenants to IMHFC as follows:

4.1Organization. The Consultant is duly organized, validly existing and in good standing under the laws of its organization and has the requisite power and authority to carry on its business as now being conducted.

4.2Authority; Binding Obligation. The Consultant has all requisite power and authority to enter into this Agreement and perform the Consulting Services. The execution and delivery of this Agreement has been duly authorized by all necessary action on the part of the Consultant. This Agreement has been duly executed and delivered by the Consultant and, assuming due execution and delivery by the other parties hereto, constitutes the valid and binding obligation of the Consultant, enforceable against the Consultant in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity.

4.3Conduct. The Consultant shall professionally, honestly and faithfully present and conduct itself at all times during the Term and in the performance of the Consulting Services. The Consultant shall perform the Consulting Services in a diligent, timely and competent manner. Consultant will perform the Consulting Services in compliance with all applicable federal, state, and local laws and regulations. Upon the expiration or earlier termination of the Term, the Consultant shall deliver to IMHFC all property belonging to IMHFC then in the Consultant’s possession or otherwise previously provided to the Consultant by or on behalf of IMHFC.

4.4Members of Consultant. The Consultant represents and warrants to IMHFC that Lawrence D. Bain (“Bain”) is and shall remain a member of the Consultant, and all of the Consulting Services for, on behalf of, and through the Consultant shall be performed by Bain.

4.5No Brokerage Activity. The Consultant acknowledges and agrees that: (i) by performing the Consulting Services, it is not engaging, and the Consultant agrees that it shall not engage, in any activities which require a real estate, brokerage or other similar license or permit which the Consultant does not possess as of the date hereof, and (ii) the Consultant is not entitled to the payment of any fees, commissions or other amounts in connection with this Agreement or the Consulting Services, except for (a) LAPF (as defined in that certain Executive Employment Agreement dated July 24, 2014 by and between Bain and IMHFC) in connection with the disposition of the New Mexico Asset and (b) as expressly described in Section 5 of this Agreement.

2

4.6No Authority. IMHFC shall make its personnel available to the Consultant as reasonably necessary to perform the Consulting Services, but Consultant shall not have authority to hire, fire, or make other management decisions regarding IMHFC personnel without the consent of the Board.

5.Base Consulting Fee; Incentive Bonus; and Expenses.

5.1Base Consulting Fee. During the Term, subject to the terms of this Agreement, as payment and consideration for the Consultant’s performance of the Consulting Services to IMHFC, and other agreements herein, IMHFC shall pay the Consultant an aggregate monthly base consulting fee of Five Thousand Dollars ($5,000) in arrears (collectively, the “Base Consulting Fee”), subject to and in accordance with the terms, conditions, qualifications and timing set forth in this Section 5. From and after the Effective Date and during the Term, the Base Consulting Fee shall be payable by IMHFC in accordance with its normal business practices, but in no event less frequently than monthly. The first payment shall occur on August 1, 2019. The Base Consulting Fee for any partial month shall be adjusted pro rata based on the ratio of the number of days in the partial month to the number of days in the entire month.

5.2Incentive Bonus. In addition to the Base Consulting Fee, Schedule 1 to this Agreement provides calculations showing an incentive bonus the Consultant will receive based on the Net Cash (defined below) amount received by IMHFC for the New Mexico Asset (the “Incentive Bonus”). The term “Net Cash” shall mean all cash received by IMHFC from the sale of the New Mexico Asset, less reimbursement of cash advances made by IMHFC to the partnerships and/or limited liability companies which own the New Mexico Asset (together, the “New Mexico Entities”), and less all expenses incurred by IMHFC after February 1, 2019, pertaining to the New Mexico Asset, including, but not limited to, broker fees, legal fees, taxes, regulatory expenses, engineering expenses, surveyor costs, filing fees, litigation costs, payments to alleged partners/LLC members of the New Mexico Entities, consulting costs, payments to municipalities, taxing districts, etc. (“Net Costs”). IMHFC shall determine the Net Costs and its determination shall be final. If the Consultant disputes the determination of Net Costs, the parties hereto agree to share the cost of an audit of the Net Costs by KPMG (“Accountant”) and the Accountant’s determination shall be final and binding on the parties.

If Net Cash received by IMHFC is at least $29 million (“Net Cash Threshold”), the Incentive Bonus will be an amount equal to the sum of: (a) $250,000; and (b) an additional $22,000 for each additional one million dollars of Net Cash received in excess of the Net Cash Threshold for the New Mexico Asset (each such $22,000 is referred to herein as a “Surplus Bonus”), except as provided below. Surplus Bonuses shall be calculated on a prorated basis for partial one million dollar increments above the Net Cash Threshold. Contemporaneously with the closing of the sale of the New Mexico Asset (the “New Mexico Closing”), IMHFC will set aside $5 million as a reserve for any future Net Costs associated with the sale of the New Mexico Asset (the “Reserve”) for the two-year period thereafter (the “Reserve Period”). The amount of the Reserve shall be included as part of the calculation of the Net Cash Threshold. If the amount of the Reserve causes the Net Cash to drop below the Net Cash Threshold, then the Consultant shall initially be entitled to fifty percent (50%) of the initial $250,000 portion of the Incentive Bonus. If the amount of the Reserve does not cause the Net Cash to drop below the Net Cash Threshold but results in Net Cash of less than the sum of the Net Cash Threshold and $5 million ($34 million), then the Consultant shall initially be entitled to the sum of $250,000 and 50% of each applicable Surplus Bonus. If the amount of the Reserve does not cause the Net Cash to drop below the Net Cash Threshold and results in Net Cash exceeding $34 million, then the Consultant shall initially be entitled to the sum of: (i) $250,000, (ii) 100% of each Surplus Bonus allocable to a one million dollar

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increment of Net Cash above $34 million; and (iii) 50% of each Surplus Bonus allocable to one million dollar increments of Net Cash above the Net Cash Threshold, but below $34 million. At the end of the Reserve Period, the Consultant will receive the balance of the Incentive Bonus then due based on the final amount of Net Cash received by IMHFC after payment of any net Costs from the Reserve.

Notwithstanding the foregoing, no Incentive Bonus payment will be made to the Consultant unless at least 50% of the value of the sale is allocated to land rather than water or if the Net Cash received does not exceed the Net Cash Threshold. In no event shall the Consultant be required to reimburse IMHFC for any Surplus Bonus initially paid, but not payable at the end of the Reserve Period due to Net Costs being paid from the Reserve.

For the avoidance of doubt, and assuming monies are received and no less than 50% is allocated to land in each of these examples, if the Net Cash received from the sale of the New Mexico Asset is $35 million, the initial portion of the Incentive Bonus shall equal the sum of: (x) $250,000; (y) $22,000 for the million dollar increment of Net Cash above the sum of the Net Cash Threshold and $5 million; and (z) $55,000, which is 50% of each million dollar increment of Net Cash above the Net Cash Threshold, but below $34 million. At the conclusion of the Reserve Period, the Consultant will receive the remaining, if any, pro rata share of the Incentive Bonus above what is already received based on the final amount of Net Cash received by IMHFC after payment of any Net Costs from the Reserve. So, for example, assuming the same $35 million sale, if $2 million of the Reserve is spent, then the final Net Cash would be $33 million, and the Consultant would be entitled to an additional $11,000 Incentive Bonus. On the other hand, if $3 million of the Reserve is spent, then Net Cash would be $32 million, and the Consultant would not be entitled to any further Incentive Bonus.

As another example, if IMHFC receives $31 million in Net Cash from the sale of the New Mexico Asset, the Consultant will initially receive 50% of the Incentive Bonus ($125,000) since the initial Reserve causes the Net Cash to drop below the Net Cash Threshold. If no additional Net Costs are expended from the Reserve during the Reserve Period, then at the end of the Reserve Period, ITH will receive $125,000 (the other 50% of the $250,000) and $44,000 in Surplus Bonuses. However, if the Reserve is depleted during the Reserve Period by $2 million or more, and the final Net Cash goes below the Net Cash Threshold, no further Incentive Bonus will be payable to the Consultant, but the Consultant will not have to return any portion of the Incentive Bonus previously paid. If the Net Costs paid from the Reserve are $1 million at the end of the Reserve Period, then IMHFC would pay the Consultant an additional $147,000 (0.5 x $250,000 + $22,000 = $147,000).

After IMHFC informs the Consultant of the amount of the incentive fee, if any, the Consultant may provide input within five (5) business days if he believes the calculations were not in accordance with the spreadsheet methodology. IMHFC will retain any monies until the dispute is resolved and the Consultant signs a release. In the event of any dispute as to the amount of the incentive fee earned, if any, the determination of IMHFC will be final and binding.

The provisions of this Section 5.2 shall survive the expiration or termination of this Agreement for any reason other than termination by IMHFC for Cause.

5.3Expenses. The Consultant shall be entitled to reimbursement by IMHFC for all reasonable and actually incurred business expenses that the Consultant incurs solely on behalf of IMHFC not paid by a third party during the Term in carrying out the Consulting Services; provided, however, that (a) all expenses, or series of related expenses, in excess of $10,000 must be pre-approved by the Chief Financial Officer of IMHFC in writing; (b) the Consultant shall provide to IMHFC the customary

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documentation in accordance with IMHFC’s expense reimbursement policies in effect from time to time; and (c) Consultant must submit to IMHFC all receipts for all properly reimbursable expenses within ninety (90) days after the incurrence of such expenses. IMHFC shall reimburse the Consultant for all expenses incurred in compliance with this Section 5.2 and not otherwise disputed by IMHFC within thirty (30) days after the receipt of such business receipts. The expense guidelines to be followed by the Consultant shall be those authorized for the Chief Executive Officer/Chairman position under IMHFC’s existing Travel and Expense Policy. For the avoidance of doubt, the $10,000 threshold described in this Section 5.3 is not intended to apply in aggregate to all expenses incurred under this Agreement, but is intended to apply to any group of related expenses, such as a single business trip. For example, a business trip will require prior approval if that business trip exceeds $10,000 in reimbursable expenses (including airfare, accommodations, car rental, ground transportation, per diem, etc.).

5.4Payments Not Duplicative. For the avoidance of doubt, the amounts payable by IMHFC to the Consultant pursuant to this Section 5 are intended by the parties to be a more specific description of the amounts payable by IMHFC pursuant to Section 6 of that certain Termination of Employment Agreement, Release and Additional Compensation Agreement dated as of April 9, 2019 by and between IMHFC and Bain, and the Consultant is not entitled to a double payment of these amounts.

6.Termination; Termination Fees; and Related Matters.

6.1Termination. The Consultant’s Consulting Services with IMHFC may be terminated at any time, with or without Cause, at the option of IMHFC, subject only to any applicable termination obligations set forth in this Section 6. The Consultant may also voluntarily resign from Consultant’s duties under this Agreement by giving at least five (5) days’ prior written notice to IMHFC, whereupon this Agreement shall immediately terminate. Upon any termination hereunder, the Term shall automatically expire.

6.2Cause. For purposes of this Section 6, the term “Cause” shall mean:

(i)    either the Consultant or Bain is convicted of, or enters a plea of nolo contendere to, an act which is defined as a felony under any federal, state or local law; or

(ii)    either the Consultant or Bain is convicted of any one or more acts of intentional theft, larceny, embezzlement, fraud or other misappropriation;

(iii)    either the Consultant’s or Bain’s commission of any one or more acts of gross negligence or willful misconduct that has resulted in material harm to the business or reputation of IMHFC; or

(iv)    the Consultant’s material breach of this Agreement that, if curable, is not cured by the Consultant within Thirty (30) days after written notice from IMHFC.

6.3Rights Upon Termination.

(i)Payment of Consulting Fees. Upon any termination of the Consultant during the Term, other than for Cause, and other than the voluntary resignation of the Consultant, the Consultant shall in all events continue to be paid all unpaid Base Consulting Fees as when the same would have been due as though this Agreement had it not been earlier terminated.

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(ii)Termination for Cause; Voluntary Resignation. In the event Consultant is terminated during the Term for Cause, or in the event the Consultant voluntarily resigns from his duties under this Agreement, the Consultant shall not be entitled to any further payment under this Agreement.

(iii)Separation Agreement Required; Time of Payment. As set forth above, in order to receive any payments or benefits pursuant to Section 6.3(i), the Consultant must execute (and not revoke) a Separation Agreement, which Agreement shall include a general release of any and all claims that the Consultant had, has or may have in connection with the Consultant’s Consulting Services with IMHFC. The Separation Agreement must be executed and returned to IMHFC, within the applicable period that will be described in the Separation Agreement and it must not be revoked by the Consultant within any applicable revocation period that will be described in the Separation Agreement. The Separation Agreement may not be executed prior to the Consultant’s last day of rendering any Consulting Services.

6.4Notice of Termination. Any termination of the Consultant shall be communicated by written notice (a “Notice of Termination”) from one party hereto to the other party hereto in accordance with this Section 6 and Section 10.11.

6.5Date of Termination. “Date of Termination”, with respect to any termination of the Consultant’s engagement during the Term, shall mean (i) if the Consultant’s engagement with IMHFC is terminated for Cause, the date on which a Notice of Termination is given and (ii) if the Consultant is terminated by IMHFC for any reason other than for Cause, the date specified in the Notice of Termination. Upon any termination of the Consultant’s engagement with IMHFC, the Consultant shall concurrently resign as president of the Corporations.

6.6Nature of Payments. The amounts due under this Section 6 are in full satisfaction of all claims the Consultant may have in respect of the Consultant’s engagement by IMHFC, and are provided as the sole and exclusive benefits to be provided to the Consultant, or the Consultant’s estate, or the Consultant’s beneficiaries in respect of the Consultant’s termination of this engagement from IMHFC.

7.Relationship. IMHFC and the Consultant intend (a) that this Agreement shall be a consulting agreement and not an employment agreement, and (b) that the Consultant shall be an independent contractor and not an employee. The Consultant shall operate at all times as an independent contractor of IMHFC. Without limiting the generality of the foregoing, nothing in this Agreement shall be construed as creating an employer/employee relationship, partnership, joint venture, or other business group between the Consultant and IMHFC.

7.1Office and Services. IMHFC shall not be required to provide the Consultant with office space, internet access, telephone service, fax service, cell phone service, administrative assistants, parking spaces, or photocopy services, all of which shall be acquired and maintained by the Consultant at the Consultant’s sole cost and expense. Notwithstanding the foregoing, the Consultant shall be entitled to reimbursement by IMHFC for reasonable postage (including overnight services), mailing, handling, reproduction and photocopy expenses incurred in connection with the Consulting Services in accordance with Section 5.2. Notwithstanding the foregoing, IMHFC will use commercially reasonable efforts to make available one of IMHFC’s existing conference rooms during normal business hours for the Consultant to work in or to conduct meetings in during the Term of this Agreement.

7.2Taxes. The Consultant, on the one hand, and IMHFC, on the other hand, agree that the Consultant is not an employee of IMHFC for state or federal tax purposes. The Consultant shall

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be solely responsible for any and all income, unemployment, social security, worker’s compensation, FICA or any other taxes or amounts payable with respect to the Base Consulting Fee, the Incentive Bonus (if any), and any and all other compensation paid or provided to the Consultant pursuant to this Agreement. The Consultant shall indemnify, defend and hold harmless IMHFC, its direct and indirect beneficial owners, and any director, officer or employee of any direct or indirect beneficial owner, from and against any tax or other liability that any of them may have with respect to any such payment and against any and all losses or liabilities, including, without limitation, defense costs, arising out of the Consultant’s failure to pay any taxes due with respect to any such payment.

7.3Workers’ Compensation and Unemployment Insurance.The Consultant is not entitled to worker’s compensation benefits or unemployment compensation benefits provided by IMHFC. The Consultant shall be solely responsible for the payment of the Consultant’s worker’s compensation, unemployment compensation, and other such payments for the Consultant. IMHFC shall not be obligated to pay for worker’s compensation for the Consultant, contribute to a state unemployment fund for the Consultant, or pay the federal unemployment tax for the Consultant or pay for any health insurance or other benefits for the Consultant.

8.Protective Covenants.

8.1Confidential Information; Inventions.

8.1.1.Process. The Consultant shall not use (except to the extent that such use is directly related to and required by the Consultant’s performance of the Consulting Services) or disclose at any time, either during the Term or thereafter, any Confidential Information (as defined below) of IMHFC of which the Consultant is or becomes aware, whether or not such information is developed by the Consultant. The Consultant shall take all reasonable steps to safeguard Confidential Information of the IMHFC in the Consultant’s possession and to protect IMHFC against disclosure, misuse, espionage, loss and theft. The Consultant shall deliver to the IMHFC, as applicable, at the end of the Term with respect to the IMHFC, as applicable, or at any other time IMHFC may request the same from the Consultant, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information of IMHFC or the Work Product (defined below) of IMHFC which the Consultant may then possess or have under the Consultant’s control. Notwithstanding the foregoing, the Consultant may truthfully respond to a lawful and valid subpoena or other legal process, but shall give IMHFC prior written notice thereof as soon as reasonably possible and shall, as much in advance of the return date as possible, make available to IMHFC’s counsel the documents and other information sought, and shall reasonably assist IMHFC’s counsel in resisting or otherwise responding to such process.

8.1.2.Scope. As used in this Agreement, the term “Confidential Information” means information that is not generally known to the public and that is used, developed or obtained by IMHFC (together with their affiliates), respectively, in connection with its business, including, without limitation, information, observations and data obtained by the Consultant while providing the Consulting Services to IMHFC (including any such information obtained prior to the Effective Date) concerning (i) the business or affairs of IMHFC, (ii) products or services, (iii) fees, costs and pricing structures, (iv) data and intellectual property, (v) analyses, (vi) drawings, photographs and reports, (vii) computer software, including operating systems, applications and listings, (viii) flow charts, manuals and documentation, (ix) data bases, (x) accounting and business methods, (xi) inventions, new developments, methods and processes, whether patented, patentable or unpatentable and whether or not reduced to practice, (xii) customers and clients and customer or client lists, (xiii) other copyrightable works, (xiv) all production methods, processes, technology and trade secrets, and (xv) all similar and

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related information in whatever form. Confidential Information shall not include any information that has been published (other than a disclosure by the Consultant in breach of this Agreement) in a form generally available to the public prior to the date the Consultant proposes to disclose or use such information. Confidential Information shall not be deemed to have been published merely because individual portions of the information have been separately published, but only if all material features comprising such information have been published in combination.

8.1.3.Definitions. As used in this Agreement, the following terms shall have the following meanings:

(i)“Person” shall be construed broadly and shall include, without limitation, an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

(ii) “Work Product” shall mean all inventions, innovations, improvements, technical information, systems, scientific developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patented, patentable or unpatentable, copyrightable, registrable as a trademark, reduced to writing, or otherwise) which relate to IMHFC’s (together with their affiliates) actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Consultant, or any employee or member thereof, (whether or not during usual business hours, whether or not by the use of the facilities of IMHFC, as applicable, and whether or not alone or in conjunction with any other Person) while performing any Consulting Services during the Term (including those conceived, developed or made prior to the Effective Date), together with all patent applications, letters patent, trademark, trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing. All Work Product that the Consultant may discover, invent, or originate with respect to IMHFC and its business during the Term or at any time in the period of twelve (12) months after the end of the Term, shall be the exclusive property of IMHFC and the Consultant hereby assigns all of the Consultant’s right, title and interest in and to such Work Product to IMHFC, including, without limitation, all intellectual property rights therein. The Consultant shall promptly disclose all Work Product to IMHFC, shall execute at the request of IMHFC any reasonable assignments or other documents IMHFC may deem necessary to protect or perfect IMHFC’s rights therein, and shall assist IMHFC in obtaining, defending and enforcing IMHFC’s rights therein.

8.1.4Enforcement. The Consulting Services are unique and the Consultant has access to Confidential Information and Work Product. Accordingly, a breach by the Consultant of any of the covenants in this Section 8 would cause immediate and irreparable harm to IMHFC that would be difficult or impossible to measure, and any damages to IMHFC for any such injury would therefore be an inadequate remedy for any such breach. Therefore, in the event of any breach or threatened breach of any provision of this Section 8, IMHFC shall be entitled, in addition to, and without limitation upon, all other remedies IMHFC may have under this Agreement, at law or otherwise, to obtain specific performance, injunctive relief and/or other appropriate relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Section 8, or require the Consultant to account for and pay over to IMHFC all compensation, profits, moneys, accruals, increments or other benefits derived from or received as a result of any transactions constituting a breach of this Section 8.

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8.Ownership. All software, hardware, equipment, or records, including all copies or extracts of them which the Consultant prepares, uses or sees during the Term in relation to the performance of the Consulting Services shall be and remain the sole property of IMHFC.

9.Miscellaneous.

10.1Successors. This Agreement is personal to the Consultant and shall not, without the prior written consent of IMHFC, be assignable by the Consultant. A transfer of any of the membership interests in the Consultant shall be deemed an assignment for the purposes of this Section 10.1. This Agreement may be assigned by IMHFC, and shall be binding upon, and inure to the benefit of IMHFC and its successors and assigns.

10.2Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be binding unless in writing and signed by the party asserted to have granted such waiver.

10.3Modification. This Agreement may not be amended or modified other than by a written agreement (a) executed by each Corporation and the Consultant, and (b) approved by the Receiver (or Stockholder, if the Receiver is no longer appointed to serve as general receiver over the Shares). In addition to the foregoing, the provisions of Section 8 may not be amended or modified without the prior written consent of IMH.

10.4Complete Agreement. This Agreement (including, without limitation, the Exhibits attached hereto) contains the entire agreement and final understanding between the parties hereto with respect to the subject matter addressed herein among the parties, and supersedes and replaces all prior negotiations and all agreements proposed or executed, whether written or oral, with the Consultant and IMHFC concerning the subject matter hereof. Any representation, promise or agreement not specifically included in this Agreement shall not be binding upon or enforceable against any party hereto.

10.5Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction or an arbitrator, as the case may be, to be invalid, prohibited or unenforceable under any present or future law, and if the rights and obligations of any party under this Agreement shall not be materially and adversely affected thereby, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction, and to this end the provisions of this Agreement are declared to be severable. Furthermore, in lieu of such invalid or unenforceable provision, there shall be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

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10.6Governing Law. This Agreement shall, without regard to principles of conflict of laws, be governed by the laws of the State of Arizona as to all matters, including, without limitation, matters of validity, construction, effect and performance.

10.7Counterparts. This Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

10.8Jurisdiction; Waiver of Jury Trial. Any judicial proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought only in the state or federal courts of the State of Arizona, and by the execution and delivery of this Agreement, each of the parties hereto accepts for themselves the exclusive jurisdiction of the aforesaid courts and irrevocably consents to the jurisdiction of such courts (and the appropriate appellate courts) in any such proceedings, waives any objection to venue laid therein and agrees to be bound by the judgment rendered thereby in connection with this Agreement or any agreement identified herein. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS AGREEMENT.

10.9Notices. Any notice to be given hereunder by any party to the other may be effected by (i) personal delivery, in writing, (ii) mail, registered or certified, postage prepaid with return receipt requested or (iii) email. Mailed and emailed notices shall be addressed to the parties at the addresses set forth below, but each party may change its address by written notice in accordance with this Section 12.11. Notices shall be deemed communicated as of the actual receipt (or independently verifiable electronic record thereof) or refusal of receipt.

If to the Consultant:        ITH Partners, LLC

_________________

_________________

Attn: Lawrence D. Bain

Email: ldb@ithpartners.com

With a copy to:            Jeffrey B. Valle

Valle Makoff LLP

11911 San Vicente Blvd., Suite 324

Los Angeles, CA 90049

Email: jvalle@vallemakoff.com

If to the Company:        IMH Financial Corporation

7001 North Scottsdale Road

Suite 2050

Scottsdale, AZ 85253

Attn: Legal Department

Email: legal@imhfc.com

10.10Headings; Construction. The section and paragraph headings and titles contained in this Agreement are inserted for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation of this Agreement. Where the

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context requires, the singular shall include the plural, the plural shall include the singular, and any gender shall include all other genders. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates.

10.11Indemnification. To the maximum extent permitted by law, IMHFC shall indemnify, protect, defend and hold harmless the Consultant from, for, and against any and all claims, liabilities, liens, fines, demands, lawsuits, actions, losses, damages, injuries, judgments, settlements, costs or expenses whether asserted in law or in equity and including any claims made by regulatory agencies asserted against the Consultant arising out of, in whole or in part, the actions or commissions of the IMHFC, this Agreement or the Consulting Services, other than those which have arisen from the Consultant’s gross negligence, willful misconduct or breach of this Agreement (hereinafter, collectively, “Consultant Claims”). The Consultant shall indemnify, protect, defend and hold harmless IMHFC and its directors, officers, employees and affiliates (the “IMHFC Indemnitees”) from, for and against any and all claims, liabilities, liens, fines, demands, lawsuits, actions, losses, damages, injuries, judgments, settlements, costs or expenses whether asserted in law or in equity and including any claims made by regulatory agencies asserted against any of the IMHFC Indemnitees arising out of, in whole or in part, the Consultant’s gross negligence, willful misconduct or breach of this Agreement (hereinafter, collectively “IMHFC Claims”). The party required by this Section 10.11 to provide the indemnity (the “Indemnitor”) shall provide a legal defense with counsel reasonably approved by the party entitled to the indemnity (the “Indemnitee”) upon the first notice the Indemnitee sends to the Indemnitor and the Indemnitor shall continue to provide such defense to the Indemnitee until the matter is fully resolved by either final judgment, settlement, or other release executed by the Indemnitee. The Indemnitor indemnifies the Indemnitee from, for and against all Consultant Claims or IMHFC Claims, as applicable, including, without limitation, all legal fees, costs and expert fees and costs that the Indemnitee may directly or indirectly sustain, suffer or incur as a result thereof. The Indemnitor shall and does hereby assume on behalf of the Indemnitee, upon its demand, the amount of any costs allowed by law, and costs identified herein, any settlement reached or any judgment that may be entered against the Indemnitee, as a result of such Consultant Claims or IMHFC Claims, as applicable. The obligations of the Indemnitor pursuant to this Section 10.11 shall survive the expiration or earlier termination of this Agreement.

10.12Third Party Beneficiaries. This Agreement confers rights and remedies upon IMHFC. No Person, other than the parties hereto and IMHFC, has any rights or remedies under this Agreement.

10.13Dispute Resolution. Any and all disputes between the parties to this Agreement, Consultant’s representatives, the Consultant and/or Bain and IMHFC, or members of IMHFC’s Board, IMHFC employees, shareholders, partners, investors or affiliated entities, shall be resolved through arbitration by a single arbitrator who is a member of the National Academy of Arbitrators (“NAA”) in accordance with the American Arbitration Association’s (“AAA”) Employment Arbitration Rules and Mediation Procedures (“Rules”). The arbitration shall take place in Arizona at a mutually convenient location. The single arbitrator shall be chosen from the AAA lists, pursuant to the AAA Rules, but only those arbitrators from the NAA may be included on the AAA list, and such arbitrators on the list shall not be exclusively from Arizona. In the event that any dispute or controversy is deemed non-arbitrable, then any remaining dispute or controversy that is found arbitrable will remain subject to arbitration. For any dispute or controversy deemed non-arbitrable, the Consultant waives its right to a jury trial for that dispute or controversy.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

CONSULTANT:

ITH Partners, LLC,                    a Delaware limited liability company

By: /s/ Lawrence D. Bain                                    Lawrence D. Bain                    Its:    Managing Partner

IMHFC:

IMH FINANCIAL CORPORATION,                    a Delaware corporation

By:    /s/ Jonathan Brohard_____        Name:    Jonathan Brohard            Its:    EVP & General Counsel        

Signature Page to Consulting Services Agreement

EXHIBIT A

CONSULTING SERVICES

Consultant shall perform the following services during the Term:

The Consultant shall assist IMHFC in effectuating a sale of the New Mexico Asset, and shall assist IMHFC with the sale of all remaining assets of IMHFC as requested by IMHFC. In connection therewith, the Consultant shall cooperate in (a) the defense of IMHFC or any of its affiliates against any threatened or pending litigation by any Person or in any investigation or proceeding by any governmental agency that relates to any events or actions which occur during or occurred prior to the Term, and (b) the prosecution of any claims and lawsuits brought by IMHFC against third parties that are currently outstanding or that may in the future be brought relating to matters which occur during or prior to the Term.

Bain, as the president of each corporation listed in Exhibit B to the Agreement, shall have general supervision over the business of such corporation and other duties incident to the office of president, and any other duties as may be from time to time assigned to the president by the board of directors and subject to the control of the board of directors in each case.

Exhibit A to Consulting Services Agreement

EXHIBIT B

CORPORATIONS

Aperion Asset Management, Inc.

Aperion Capital Texas, Inc.Aperion Energy, Inc.Aperion Homes, Inc. Aperion Partners, Inc. Aperion Technology, Inc.Aperion Wellness, Inc.Aperion Water Resources, Inc.
APL Development, Inc. Recorp Capital Group, Inc. Recorp Communities, Inc.Recorp Investments, Inc.Recorp Management, Inc.Recorp of America, Inc.Recorp Partners, Inc.Recorp, Inc.

[Note – the highlighted entities above are the GP and/or manager of all of the entities that own the New Mexico assets.]

Note: certain information in this exhibit has been redacted because, in the opinion of management, such information a) is immaterial to the overall terms of this agreement and b) would be competitively harmful if publicly disclosed.

SCHEDULE 1

(See Attached. - REDACTED)

Note: certain information in this exhibit has been redacted because, in the opinion of management, such information a) is immaterial to the overall terms of this agreement and b) would be competitively harmful if publicly disclosed.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF IMH FINANCIAL CORPORATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Chadwick Parson, Chief Executive Officer and Chairman of IMH Financial Corporations, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of IMH Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 14, 2019	/s/ Chadwick Parson
		Chadwick Parson
		Chief Executive Officer and Chairman, IMH Financial Corporation

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER OF IMH FINANCIAL CORPORATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Samuel J. Montes, Chief Financial Officer of IMH Financial Corporation, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of IMH Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 14, 2019	/s/ Samuel J. Montes
		Samuel J. Montes
		Chief Financial Officer, IMH Financial Corporation

EX-32.2

EXHIBIT 32.2

Certification of Chief Executive Officer and Chief Financial Officer of IMH Financial Corporation

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of IMH Financial Corporation (the “Company”) on Form 10-Q for the year ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the undersigned, certify, to the best of our knowledge, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IMH FINANCIAL CORPORATION
By:	/s/ Chadwick Parson
	Chadwick Parson
	Chief Executive Officer and Chairman
By:	/s/ Samuel J. Montes
	Samuel J. Montes
	Chief Financial Officer
Dated:	November 14, 2019

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REVENUE

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

REVENUE

REVENUE

The following is a breakdown of revenue by source for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Operating property revenue
Commercial real estate rental revenue	$	1,157	$	—	$	1,474	$	—
Hotel revenues
Rooms	1,498		1,311		2,456		3,207
Food and beverage	800		314		1,339		1,440
Banquet	343		175		373		333
Spa and fitness center	166		194		378		522
Other	118		91		175		251
Total operating property revenue	4,082		2,085		6,195		5,753
Mortgage loan income, net	340		709		1,438		1,976
Management fees, investment and other income	129		32		486		323
Total revenue	$	4,551	$	2,826	$	8,119	$	8,052

Operating Property Revenue

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space to tenants, common area maintenance charges and parking space rental. Leases with tenants are classified as operating leases and revenue is recognized on a straight line basis over the term of the respective leases.

Hotel Revenues

The Company derives hotel revenues from our hotel in Sonoma, California, which is reflected as operating property revenue in the consolidated statements of operations. Rooms revenue represents revenue from the occupancy of our hotel rooms and is driven by the occupancy and daily rate charged. Rooms revenue also includes revenue for guest no-shows, day use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay.

Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel, in-room dining and mini-bar revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audio-visual equipment/services, rental of function rooms, and other F&B related revenue. Revenue is recognized as the services or products are provided. Our hotel property may employ third parties to provide certain services at the property, for example, audio visual services. We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenue as appropriate (i.e., gross vs. net).

Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, resort fees, spa and other guest services. Attrition and cancellation fees are recognized for non-cancellable deposits when the customer provides notification of cancellation within established management policy time frames. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue.

Mortgage Investment Revenue Recognition

Interest on mortgage loans is recognized as revenue when earned using the interest method based on a 360 or 365 day year, in accordance with the related mortgage loan terms. We do not recognize interest income on loans once they are deemed to be impaired and placed in non-accrual status. Generally, a loan is placed in non-accrual status when (i) it is past its scheduled maturity by more than 90 days; (ii) it becomes delinquent as to interest due by more than 90 days; or (iii) the related fair value of the collateral is less than the total principal, accrued interest and related costs. We may determine that a loan, while delinquent in payment status, should not be placed in non-accrual status in instances where the fair value of the loan collateral significantly exceeds the principal and the accrued interest, as we expect that income recognized in such cases is probable of collection. Unless and until we have determined that the value of underlying collateral is insufficient to recover the total contractual amounts due under the loan term, generally our policy is to continue to accrue interest until the loan is more than 90 days delinquent with respect to accrued, uncollected interest or more than 90 days past scheduled maturity, whichever comes first.

We defer fees for loan originations, processing and modifications, net of direct origination costs, at origination and amortize such fees as an adjustment to interest income using the effective interest method. Revenue for non-refundable commitment fees is recognized over the remaining life of the loan as an adjustment to the interest income yield. We defer premiums or discounts arising from acquired loans at acquisition and amortize such premiums or discounts as an adjustment to interest income over the contractual term of the related loan using the effective interest method. We include the unamortized portion of the premium or discount as a part of the net carrying value of the loan in the condensed consolidated balance sheets. Costs not directly paid to the seller of the loan are expensed as incurred and not amortized, except for any fees paid directly to the seller.

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VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES (Tables)

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Schedule of Equity Method Investments

The following table summarizes the carrying amounts of the above referenced entities’ assets and liabilities included in the Company’s condensed consolidated balance sheets at September 30, 2019 and December 31, 2018, net of intercompany eliminations (in thousands):

	September 30, 2019		December 31, 2018
Total assets	$	100,143	$	85,240
Total liabilities	58,205		37,770

The following table summarizes the VIE’s results of operations for the three and nine months ended September 30, 2019 and 2018, net of intercompany eliminations (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(393	)	$	(262	)	$	(6,433	)	$	(786	)

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DOCUMENT AND ENTITY INFORMATION - shares	9 Months Ended
	Sep. 30, 2019	Nov. 14, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	IMH Financial Corp
Entity Central Index Key	0001397403
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Entity Current Reporting Status	Yes
Amendment Flag	false
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		1,909,338
Class B-1 Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		3,376,682
Class B-2 Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		3,377,814
Class B-3 Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		6,912,232
Class B-4 Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		313,790
Class C Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		668,903
Series B-1 Cumulative Convertible Preferred Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		2,604,852
Series B-2 Cumulative Convertible Preferred Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		5,595,148
Series B-3 Cumulative Convertible Preferred Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		2,352,941
Series B-4 Cumulative Convertible Preferred Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		1,875,000
Series A Preferred Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		22,000

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Treasury Stock	Paid-in Capital	Accumulated deficit	Total IMH Financial Corporation Stockholders' Equity (Deficit)	Non-controlling Interest
Beginning Balances (in shares) at Dec. 31, 2017		18,079,522	(1,826,096)
Beginning Balances at Dec. 31, 2017	$ 35,811	$ 181	$ (6,286)	$ 714,889	$ (679,535)	$ 29,249	$ 6,562
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(3,794)				(3,704)	(3,704)	(90)
Contributions from Hotel Fund investors	3,485						3,485
Distributions to Hotel Fund investors	(20)						(20)
Hotel Fund syndication costs	(51)			(51)		(51)
Stock warrant and equity cost accretion	688			688		688
Cash dividends on Series B redeemable convertible preferred stock	(592)			(592)		(592)
Deemed dividend on Series B redeemable convertible preferred stock	(817)			(817)		(817)
Stock-based compensation (in shares)		438,161
Stock-based compensation	100	$ 4		96		100
Ending Balances (in shares) at Mar. 31, 2018		18,517,683	(1,826,096)
Ending Balances at Mar. 31, 2018	34,810	$ 185	$ (6,286)	714,213	(683,239)	24,873	9,937
Beginning Balances (in shares) at Dec. 31, 2017		18,079,522	(1,826,096)
Beginning Balances at Dec. 31, 2017	35,811	$ 181	$ (6,286)	714,889	(679,535)	29,249	6,562
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(6,408)
Profit participation distribution to non-controlling interests	(1,939)
Ending Balances (in shares) at Sep. 30, 2018		18,596,774	(1,870,164)
Ending Balances at Sep. 30, 2018	32,762	$ 186	$ (6,286)	710,572	(686,933)	17,539	15,223
Beginning Balances (in shares) at Mar. 31, 2018		18,517,683	(1,826,096)
Beginning Balances at Mar. 31, 2018	34,810	$ 185	$ (6,286)	714,213	(683,239)	24,873	9,937
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(2,499)				(2,474)	(2,474)	(25)
Contributions from Hotel Fund investors	1,335						1,335
Distributions to Hotel Fund investors	(80)						(80)
Hotel Fund syndication costs	(35)			(35)		(35)
Cash dividends on Series B redeemable convertible preferred stock	(647)			(647)		(647)
Deemed dividend on Series B redeemable convertible preferred stock	(914)			(914)		(914)
Cash dividends on Series A redeemable preferred stock	(142)			(142)		(142)
Stock-based compensation (in shares)		79,091
Stock-based compensation	77			77		77
Treasury stock repurchase (in shares)			44,068
Treasury stock repurchase	0
Ending Balances (in shares) at Jun. 30, 2018		18,596,774	(1,870,164)
Ending Balances at Jun. 30, 2018	31,905	$ 185	$ (6,286)	712,552	(685,713)	20,738	11,167
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(115)				(1,220)	(1,220)	1,105
Contributions from Hotel Fund investors	4,995						4,995
Distributions to Hotel Fund investors	(105)						(105)
Hotel Fund syndication costs	(1)			(1)		(1)
Stock warrant and equity cost accretion	(107)			(107)		(107)
Cash dividends on Series B redeemable convertible preferred stock	(655)			(655)		(655)
Profit participation distribution to non-controlling interests	(1,939)						(1,939)
Deemed dividend on Series B redeemable convertible preferred stock	(920)			(920)		(920)
Cash dividends on Series A redeemable preferred stock	(427)			(427)		(427)
Stock-based compensation (in shares)		0
Stock-based compensation	131	$ 1		130		131
Ending Balances (in shares) at Sep. 30, 2018		18,596,774	(1,870,164)
Ending Balances at Sep. 30, 2018	32,762	$ 186	$ (6,286)	710,572	(686,933)	17,539	15,223
Beginning Balances (in shares) at Dec. 31, 2018		18,596,774	(1,870,164)
Beginning Balances at Dec. 31, 2018	29,163	$ 186	$ (6,286)	708,523	(692,876)	9,547	19,616
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(5,013)				(5,136)	(5,136)	123
Contributions from Hotel Fund investors	3,520						3,520
Distributions to Hotel Fund investors	(266)						(266)
Hotel Fund syndication costs	(12)			(12)		(12)
Stock warrant and equity cost accretion	(70)			(70)		(70)
Cash dividends on Series B redeemable convertible preferred stock	(641)			(641)		(641)
Deemed dividend on Series B redeemable convertible preferred stock	(936)			(936)		(936)
Cash dividends on Series A redeemable preferred stock	(412)			(412)		(412)
Stock-based compensation (in shares)		112,304
Stock-based compensation	117	$ 1		116		117
Treasury stock repurchase (in shares)			500,000
Treasury stock repurchase	(1,000)		$ (1,000)			(1,000)
Ending Balances (in shares) at Mar. 31, 2019		18,709,078	(2,370,164)
Ending Balances at Mar. 31, 2019	24,450	$ 187	$ (7,286)	706,568	(698,012)	1,457	22,993
Beginning Balances (in shares) at Dec. 31, 2018		18,596,774	(1,870,164)
Beginning Balances at Dec. 31, 2018	29,163	$ 186	$ (6,286)	708,523	(692,876)	9,547	19,616
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(16,673)
Profit participation distribution to non-controlling interests	$ 0
Stock-based compensation (in shares)	332,722
Ending Balances (in shares) at Sep. 30, 2019		18,929,496	(2,370,181)
Ending Balances at Sep. 30, 2019	$ 10,078	$ 189	$ (7,286)	703,813	(710,885)	(14,169)	24,247
Beginning Balances (in shares) at Mar. 31, 2019		18,709,078	(2,370,164)
Beginning Balances at Mar. 31, 2019	24,450	$ 187	$ (7,286)	706,568	(698,012)	1,457	22,993
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(4,070)				(4,388)	(4,388)	318
Contributions from Hotel Fund investors	3,998						3,998
Distributions to Hotel Fund investors	(344)						(344)
Hotel Fund syndication costs	(36)			(36)		(36)
Stock warrant and equity cost accretion	(31)			(31)		(31)
Cash dividends on Series B redeemable convertible preferred stock	(648)			(648)		(648)
Deemed dividend on Series B redeemable convertible preferred stock	(954)			(954)		(954)
Cash dividends on Series A redeemable preferred stock	(417)			(417)		(417)
Stock-based compensation (in shares)		83,734
Stock-based compensation	76	$ 1		75		76
Ending Balances (in shares) at Jun. 30, 2019		18,792,812	(2,370,164)
Ending Balances at Jun. 30, 2019	22,024	$ 188	$ (7,286)	704,557	(702,400)	(4,941)	26,965
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(7,592)				(8,485)	(8,485)	893
Reclassification of profit participation to liability	(463)						(463)
Acquisition of non-controlling interests	(1,607)			1,146		1,146	(2,753)
Distributions to Hotel Fund investors	(395)						(395)
Stock warrant and equity cost accretion	(52)			(52)		(52)
Cash dividends on Series B redeemable convertible preferred stock	(1,320)			(1,320)		(1,320)
Deemed dividend on Series B redeemable convertible preferred stock	(366)			(366)		(366)
Cash dividends on Series A redeemable preferred stock	(422)			(422)		(422)
Stock-based compensation (in shares)		136,684
Stock-based compensation	271	$ 1		270		271
Treasury stock repurchase (in shares)			17
Treasury stock repurchase	0
Ending Balances (in shares) at Sep. 30, 2019		18,929,496	(2,370,181)
Ending Balances at Sep. 30, 2019	$ 10,078	$ 189	$ (7,286)	$ 703,813	$ (710,885)	$ (14,169)	$ 24,247

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

Mezzanine Loan Sale

Subsequent to September 30, 2019, the Company entered into an agreement with a third party to sell a $12.3 million mezzanine loan at a discount resulting in a loss of $2.6 million. The loss was recorded in the accompanying condensed consolidated statement of operations as a provision for credit loss during the three months ended September 30, 2019.

Investment in Unconsolidated Entities

Subsequent to September 30, 2019, the Company funded $1.0 million of its remaining obligation to Juniper Bishops, LLC under the terms of the that investment agreement as described in Note 6.

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NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS (Details 2) $ in Thousands	Sep. 30, 2019 USD ($)
Year
2019	$ 5,955
2020	46,481
2021	26
2022	8
Less: deferred financing costs of notes payable	(306)
Total	$ 52,164

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STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE (Details 2) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Antidilutive securities excluded from earnings per share (in shares)	14,530,973	14,161,980	14,543,369	14,596,212
Options to purchase common stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Antidilutive securities excluded from earnings per share (in shares)	1,108,027	1,085,497	1,093,090	1,080,442
Restricted stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Antidilutive securities excluded from earnings per share (in shares)	147,722	318,390	256,129	362,829
Warrants to purchase common stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Antidilutive securities excluded from earnings per share (in shares)	2,600,000	2,541,286	2,600,000	2,600,000
Convertible preferred stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Antidilutive securities excluded from earnings per share (in shares)	10,675,224	10,216,807	10,594,150	10,552,941

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SUBSEQUENT EVENTS (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 14, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Subsequent Event [Line Items]
Provision for (recovery of) credit losses, net		$ 2,598	$ 0	$ 1,463	$ (175)
Mortgage Receivable
Subsequent Event [Line Items]
Mortgage loans, net				$ 11,700		$ 23,200
Subsequent Event
Subsequent Event [Line Items]
Provision for (recovery of) credit losses, net	$ 2,600
Subsequent Event | Juniper New Mexico, LLC | Real Estate Loan
Subsequent Event [Line Items]
Commitment funded	1,000
Subsequent Event | Mortgage Receivable | Mezzanine Loan
Subsequent Event [Line Items]
Mortgage loans, net	$ 12,300

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LEASES (Details 3) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Leases [Abstract]
Operating cash flows from operating lease	$ 321
Right-of-use assets	1,574
Lease liabilities	1,693
Operating lease right-of-use assets in other assets	1,330
Operating lease liabilities in accounts payable and other accrued expenses	$ 1,431	$ 0
Weighted average remaining lease term	2 years 9 months 18 days
Operating leases - Weighted average discount rate	7.10%

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COMMITMENTS AND CONTINGENCIES (Details Textual) $ in Millions		1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	23 Months Ended
	Oct. 02, 2017	Oct. 31, 2017	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2017 a
Commitments and Contingencies [Line Items]
Recovery of credit losses			$ (1.1)	$ (0.2)	$ (1.1)	$ (0.2)
Employer match percentage					4.00%
Employer contribution in period			0.1	$ 0.1
Fund expense reimbursements					$ (1.1)			$ (1.6)
Carinos Properties, LLC
Commitments and Contingencies [Line Items]
Settlement and related costs			$ 2.7
Intercreditor Agreement Claim
Commitments and Contingencies [Line Items]
Amount sought by third party					0.3
Pending Litigation | RNMA I
Commitments and Contingencies [Line Items]
Amount sought by third party							$ 3.1
New Mexico | Pending Litigation | Maniatis
Commitments and Contingencies [Line Items]
Area of land (in acres) | a									7,000
Texas | Pending Litigation
Commitments and Contingencies [Line Items]
Area of land (in acres) | a									111
Hotel
Commitments and Contingencies [Line Items]
Fund expense reimbursements					$ (0.1)
Hotel | MacArthur Loan | MacArthur Place
Commitments and Contingencies [Line Items]
Repayment guaranty	50.00%	50.00%			50.00%
L’Auberge Fund Manager, LLC | Preferred Interests
Commitments and Contingencies [Line Items]
Selling commissions as % of gross proceeds					6.00%
Nonaccountable expense reimbursements broker-dealers as percent of gross proceeds					1.00%

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FAIR VALUE

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

Valuation Allowance and Fair Value Measurement of Loans, Real Estate Held for Sale, Other REO, and Derivative Instruments

Our valuation analysis process and procedures are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We perform a valuation analysis of our loans, REO held for sale, other REO, and derivative instruments on a quarterly basis. We consider all relevant, material circumstances to determine if, and the extent to which, a valuation allowance is required.

Impairment for collateral dependent loans is measured at the balance sheet date based on the then fair value of the collateral in relation to contractual amounts due under the terms of the applicable loan if foreclosure is probable. Substantially all of our loans in default are deemed to be collateral dependent.

REO assets that are classified as held for sale and other REO are measured at the lower of carrying amount or fair value, less estimated cost to sell. If an asset is considered impaired, an impairment loss is recognized for the difference between the asset’s carrying amount and its fair value, less estimated cost to sell. If we elect to change the disposition strategy for our other REO, and such assets were deemed to be held for sale, we may record additional impairment charges, and the amounts could be significant.

Selection of Single Best Estimate of Value

The results of our valuation efforts generally provide a range of values for the collateral valued or REO assets rather than a single value. The selection of a value from within a range of values depends upon general overall market conditions as well as specific market conditions for each property valued and its stage of entitlement or development. In selecting the single best estimate of value, we consider the information in any relevant valuation reports, credible purchase offers received and agreements executed, as well as multiple observable and unobservable inputs.

Fair Value Measurements of Operating Properties Acquired Through Foreclosure

As described in Note 4, on May 29, 2019, we foreclosed on the membership interests of a limited liability company that was pledged as collateral on a defaulted mezzanine note receivable. The limited liability company owns and operates a commercial office building known as Broadway Tower, located in St. Louis, Missouri. Upon foreclosure, we acquired the membership interests in the limited liability company that owns the office building and related assets, and assumed related liabilities of Broadway Tower, all of which were recorded at fair value in accordance with GAAP. The valuation methodology used to conclude our position on the fair value was based on the income approach using a discounted cash flow methodology.

Fair Value Measurements of Derivative Instrument

The Company acquired an interest rate cap in 2018 to mitigate its risk on certain variable debt against rising interest rates. In order to estimate the fair value of this derivative instrument, we use valuation reports from the third party broker who issued the derivative instrument. The report calculates fair value by using inputs, including market-observable data such as U.S dollar and foreign-denominated interest rate curves, foreign exchange rates, volatilities, and information derived from or corroborated by market-observable data which are classified as Level 2 inputs in the fair value hierarchy. The fair value method does not contemplate credit valuation adjustments (“CVA”) which would be a Level 3 input as the CVA uses credit spreads which are generally unobservable to the market. The fair value used in our financial statements approximate fair value without the CVA. As of September 30, 2019, the fair value of the interest rate cap was $0 and we recorded an unrealized loss on derivative instruments of $39.0 thousand and $0.3 million during the three and nine months ended September 30, 2019, respectively, and none during the three and nine months ended September 30, 2018.

Valuation Conclusions

Based on the results of our evaluation, analysis and subsequent events, we recorded a provision for credit loss on our loan portfolio of $2.6 million in the third quarter of 2019 relating to the sale of a $12.3 million mezzanine loan investment subsequent to September 30, 2019 which resulted in a loss. We recorded no impairment of REO during the three and nine months ended September 30, 2019. We did not record any non-cash provision for credit losses on our loan portfolio or impairment of REO during the three and nine months ended September 30, 2018. We recorded offsetting net recoveries of investment and credit losses totaling $1.1 million during the nine months ended September 30, 2019, and $0.2 million for the nine months ended September 30, 2018, resulting from the collection of cash and/or other assets recovered from certain guarantors on certain legacy loans and insurance recoveries received during the period.

As of September 30, 2019, the valuation allowance on our mortgage loans totaled $15.3 million, representing 57.7% of the total outstanding loan principal and accrued interest balances. As of December 31, 2018, the valuation allowance on our mortgage loans totaled $13.1 million, representing 37.1% of total outstanding loan principal and accrued interest balances. With the existing valuation allowance recorded as of September 30, 2019, we believe that, as of that date, the fair value of our loans, REO assets held for sale, and other REO is adequate in relation to the net carrying value of the related assets and that no additional valuation allowance or impairment is considered necessary. While the above results reflect management’s assessment of fair value as of September 30, 2019 based on currently available data, we will continue to evaluate our loans and REO assets to determine the appropriateness of the carrying value of such assets. Depending on market conditions, such updates may yield materially different values and potentially increase or decrease the valuation allowance for loans or impairment charges for REO assets.

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MORTGAGE LOANS, NET

9 Months Ended

Sep. 30, 2019

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

MORTGAGE LOANS, NET

MORTGAGE LOANS, NET

Lending Activities

As of September 30, 2019, the Company held four portfolio loans with a balance of $11.7 million, net of valuation allowances, two of which were performing loans bearing a weighted-average interest rate of 9.8% as of September 30, 2019. As of December 31, 2018, the Company held six portfolio loans with a balance of $23.2 million, net of valuation allowances, three of which were performing loans bearing a weighted-average interest rate of 9.4%. As of September 30, 2019 and December 31, 2018, the Company held two and three non-performing portfolio loans, respectively, two of which have been fully reserved and have a zero carrying value as of September 30, 2019. The valuation allowance was $15.3 million as of September 30, 2019 and $13.1 million as of December 31, 2018. During the nine months ended September 30, 2019, one performing loan with a principal balance of $3.0 million was repaid in full. In addition, during the nine months ended September 30, 2019, we foreclosed on one of the Company’s mezzanine loan investments that had a carrying value of $8.2 million as of the date of foreclosure, which had been in default since September 2018. In May 2019, we foreclosed on the loan collateral consisting of 100% of the membership interests in the limited liability company owning the underlying property. We recorded the acquired assets and assumed liabilities at fair value and consolidated the operations commencing on the foreclosure date. See additional discussion in Notes 5 and 8.

During the three months ended September 30, 2019, and 2018, we recorded mortgage interest income of $0.3 million and $0.7 million, respectively. During the nine months ended September 30, 2019 and 2018, we recorded mortgage interest income of $1.4 million and $2.0 million, respectively.

While the Company has not originated any new loans in 2019, we funded $2.0 million during the nine months ended September 30, 2019 for a $13.1 million construction loan that was originated during 2018. As of September 30, 2019, our remaining commitment under that loan was $11.1 million.

As disclosed in Note 16, we sold a $12.3 million mezzanine note subsequent to September 30, 2019 at a discount and recorded a corresponding provision for credit loss of $2.6 million during the three and nine months ended September 30, 2019 which is reflected in the accompanying condensed consolidated financial statements.

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INTANGIBLE ASSETS AND GOODWILL

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS AND GOODWILL

INTANGIBLE ASSETS AND GOODWILL

In connection with the purchase of MacArthur Place, we allocated a portion of the total purchase price to certain intangible assets and goodwill. Of the total $16.3 million allocated to purchased intangibles, $0.1 million, $0.8 million, and $15.4 million were allocated to trade name and other, customer relationships, and goodwill, respectively.

The changes in the carrying amount of intangibles and goodwill allocated to our Hospitality and Entertainment Operations segment for the nine months ended September 30, 2019 is as follows (in thousands):

	Goodwill		Other intangibles, net
Balance at December 31, 2018	$	15,357	$	641
Reductions:
Amortization expense	—		(210		)
Balance at September 30, 2019	$	15,357	$	431

A summary of our intangible assets and goodwill as of September 30, 2019 and December 31, 2018 is as follows (in thousands):

	Gross Carrying Amount				Accumulated Amortization						Net Carrying Amount
	September 30,		December 31,		September 30,			December 31,			September 30,		December 31,
	2019		2018		2019			2018			2019		2018
Amortizing intangible assets:
Trade name and other	$	90	$	90	$	(26	)	$	(16	)	$	64	$	74
Customer relationships	800		800		(533		)	(333		)	267		467
Non-amortizing intangible assets:
Liquor license	100		100		—			—			100		100
Goodwill	15,357		15,357		—			—			15,357		15,357
	$	16,347	$	16,347	$	(559	)	$	(349	)	$	15,788	$	15,998

Trade name and other, and customer relationships have weighted-average useful lives from the date of purchase of 7.0 years and 3.0 years, respectively. Goodwill and our liquor license are not subject to amortization due to the indeterminable life of such assets. Amortization expense relating to our purchased intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2019, respectively. Amortization expense relating to our purchased intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2018, respectively. We perform an impairment assessment on goodwill and intangible assets annually in the fourth quarter of each year.

As of September 30, 2019, expected amortization expense for our purchased amortizing intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year	Amount
2019	$	70
2020	213
2021	13
2022	13
2023	13
Thereafter	9
Total	$	331

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SIGNIFICANT ACCOUNTING POLICIES (Details Textual) - USD ($) $ in Thousands		3 Months Ended	9 Months Ended
	Sep. 25, 2019	Sep. 30, 2019	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018	Sep. 30, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right of use assets		$ 1,330	$ 1,330
Lease liability arising from the recognition of right-of-use asset		$ 1,431	$ 1,431			$ 0
ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right of use assets				$ 1,600
Lease liability arising from the recognition of right-of-use asset				$ 1,700
Deferred rent					$ 100
Series B-4 Preferred Stock
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Additional issue of preferred stock (in shares)		1,875,000	1,875,000
Stock conversion ratio (shares)		1	1
Redemption period			5 years
Preferred stock redemption price	145.00%	145.00%	145.00%

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OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Property	Sep. 30, 2018 USD ($)	May 29, 2019 USD ($)	Dec. 31, 2018 USD ($)
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
REO assets acquired through foreclosure	$ 105,800		$ 105,800			$ 75,000
Assets	152,559		152,559			143,639
Liabilities	66,663		66,663			47,066
Operating lease right of use assets	1,330		1,330
Operating lease liabilities in accounts payable and other accrued expenses	1,431	$ 0	1,431	$ 0
Proceeds from sale of REO			895	8,709
Gain on disposal of assets	223	3,543	244	3,938
Real estate operating costs and expenses	4,800	2,500	11,000	7,200
Cash outlays for capitalized development costs			$ 13,359	7,208
Broadway Tower
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Assets					$ 22,600
Liabilities					15,500
Operating lease right of use assets					600
Operating lease liabilities in accounts payable and other accrued expenses					$ 600
Number of real estate properties sold (in properties) | Property			4
Proceeds from sale of REO		8,100	$ 900	8,700
Gain on disposal of assets	200	$ 3,500	200	$ 3,900
Held For Sale
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
REO assets acquired through foreclosure	7,400		7,400			7,400
Operating Properties
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
REO assets acquired through foreclosure	65,100		65,100			33,900
Other Real Estate Owned
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
REO assets acquired through foreclosure	$ 33,300		$ 33,300			$ 33,700

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LEASES (Details 4) - USD ($) $ in Thousands	Sep. 30, 2019	Sep. 30, 2018
Leases [Abstract]
Remainder of 2019	$ 214
2020	574
2021	575
2022	237
Total lease payments	1,600
Less imputed interest	(169)
Operating lease liabilities in accounts payable and other accrued expenses	$ 1,431	$ 0

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LEASES (Details Textual) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	May 29, 2019 Loan
Lessee, Lease, Description [Line Items]
Lessee, renewal term (in years)	5 years		5 years
Operating lease expense	$ 100	$ 100	$ 200	$ 200
Variable lease payment	$ 100	$ 100	$ 100	$ 100
Minimum
Lessee, Lease, Description [Line Items]
Non-cancelable lease term (in years)	10 months 24 days		10 months 24 days
Lessee, remaining lease term (in years)			1 year
Maximum
Lessee, Lease, Description [Line Items]
Non-cancelable lease term (in years)	10 years 1 month 6 days		10 years 1 month 6 days
Lessee, remaining lease term (in years)			4 years
Broadway Tower
Lessee, Lease, Description [Line Items]
Number of loans | Loan					51
Juniper Investment Advisors, LLC
Lessee, Lease, Description [Line Items]
Expense reimbursement	$ 33		$ 33

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Construction and Related Guarantees

As described in Note 9, the Company agreed to provide MidFirst Bank with a loan repayment guaranty equal to 50% of the sum of the outstanding principal and accrued and unpaid interest on the MacArthur Loan, plus a guaranty of 50% of hotel operating costs, enforcement costs under the loan (if any), and recourse amounts that may come due (if any). The Company has also provided

a construction completion guaranty with respect to the planned renovations of MacArthur Place. The construction completion guaranty will be released upon payment of all project costs and receipt of a certificate of occupancy. The MidFirst Bank loan documents also require that the loan remain “in balance” throughout its term such that the sum of all remaining undisbursed loan funds and the amounts expended by the Company will be sufficient to meet the approved construction budget and pay the loan interest. If the loan becomes “out of balance”, the Company must fund the difference. Excess costs incurred to date have been funded by the Hotel Fund or the Company and management expects that the Hotel Fund or the Company will fund any further excess costs.

Guarantor Recovery

We have pursued and periodically receive favorable judgments against guarantors in connection with their personal guarantees of certain legacy loans on which we previously foreclosed. Similarly, we have filed claims against certain insurance providers and other parties for reimbursement of amounts we believe are due to the Company under such policies. Due to the uncertainty of the nature and extent of the available assets of these guarantors to pay the judgment amounts or amounts collectible under insurance claims, we do not record recoveries for any amounts due under such judgments or claims, except to the extent we have received assets without contingencies.

We continue to pursue, investigate and evaluate the assets available of guarantors to collect all amounts due under judgments received in our favor. However, to the extent that such amounts are not determinable, they have not been recognized as recovery income in the accompanying consolidated statements of operations. Further recoveries under this and other judgments received in our favor will be recognized when realization of the recovery is deemed probable and when all contingencies relating to recovery have been resolved. We recorded recoveries during the three and nine months ended September 30, 2019 of $1.1 million relating to cash collected on a guarantor claim. We recorded recoveries during the three and nine months ended September 30, 2018 of $0.2 million.

Employee Benefit Plan

The Company, through its human resource provider, participates in a 401(k) retirement savings plan that allows for eligible participants to defer compensation, subject to certain limitations imposed by the Internal Revenue Code of 1986, as amended. The Company may provide a discretionary matching contribution of up to 4% of each participant’s eligible compensation. During each of the three months ended September 30, 2019 and 2018, the Company’s matching contribution was $0.1 million, which is included in general and administrative expenses in the accompanying consolidated statement of operations.

Legal Matters

We may be a party to litigation as the plaintiff or defendant in the ordinary course of business. While various asserted and unasserted claims may exist, resolution of these matters cannot be predicted with certainty. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the uncertainty of predicting the outcome of litigation and regulatory matters, it is generally difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be materially higher or lower than any amounts reserved for the claims.

Partnership Claims

In August 2016, a limited liability company member of Carinos Properties, LLC (“Carinos”) and Unit 6 Partners, LLC (“UP6”), filed a complaint in the United States District Court for the District of Arizona (“Federal Court”) generally alleging the Company breached its fiduciary duty to plaintiff under ERISA with respect to certain property we own in New Mexico. In April 2018, the court denied the Company’s motion for summary judgment in the case, but stayed any further action in the case pending the results of related litigation before the state trial court (“State Court”) described below. Damages were not specified in the Federal Court. During the three months ended September 30, 2019 a settlement and release agreement in this matter was executed which resulted in, among other things, 1) dismissal of this litigation, and 2) the Company’s receipt of the limited partner interests in the underlying entities (which had the impact of decreasing the non-controlling interest recorded for such interests in the accompanying financial statements), in exchange for cash payment of $2.7 million. The Company did not incur a loss as a result of this transaction as the fair value of the limited partner interests received exceeded the cash payment amount.

In the first fiscal quarter of 2017, Recorp-New Mexico Limited Partnership (“RNMA I”) conducted a capital call pursuant to its organizational documents.  As a result of the capital call, certain limited partnership interests in RNMA I were transferred to one or more subsidiaries of the Company.  One of the limited partners in RNMA I whose limited partnership interests were transferred filed suit challenging the effectiveness of the transfer and forfeiture of his limited partnership interests in State Court.  On January 4, 2019, the court issued a minute entry, holding, among other things, that the limited partner’s limited partnership interest in RNMA I was not forfeited.  On January 22, 2019, the subsidiary of the Company filed a motion for a new trial on the minute entry ruling.  On March 21, 2019, the court issued an order staying its January 4, 2019 minute entry ruling, and granting a new trial.  An evidentiary hearing was held in early August 2019 on certain factual questions, and the court requested post trial briefing in September 2019.  Post trial briefing has concluded, and the Company awaits the State Court’s ruling. Based on the advice of counsel, management believes (a) the court’s January 4, 2019 minute entry finding was incorrect as to matters of both fact and law, and (b) the transfer of the limited partnership interests by the then-acting general partner was done in accordance with the rights granted to the general partner under the relevant organizational documents, and we believe that it is probable that the court, after consideration of the above referenced September 2019 post trial briefing, will ultimately agree with those conclusions. However, if the State Court were to rule that the limited partner interest transfers were ineffective, this could result in the recording of non-controlling interests in that partnership of approximately $3.1 million as of December 31, 2018.  Management does not believe that loss is probable and, accordingly, no amounts have been accrued for this matter in the accompanying condensed consolidated financial statements.

In September 2017, the State Court ordered the termination of the receivership over Stockholder, LLC, a wholly-owned subsidiary of the Company (“Stockholder”). Stockholder is the owner of all of the shares of stock in certain corporations that act as the general partner / limited liability company manager of several entities that own land and/or certain water interests in New Mexico.

In December 2017, the State Court entered an interim “stay” order in the Company’s case against judgment debtor David P. Maniatis and his affiliates (“Maniatis”) enjoining the Company from taking any further collection action against Maniatis, pending an accounting of all previous debt collection activities and a trial on certain limited issues involving the calculation of interest and penalties on the original defaulted debt guaranteed by Maniatis. The stay order also temporarily inhibited the Company from effecting the sale or transfer of all or any part of the property previously acquired by the Company through litigation involving Maniatis, including approximately 7,000 acres of land and related water interests in New Mexico, and 111 acres of land in Texas. Subsequent to March 31, 2019, the State Court lifted the stay on all property previously acquired by the Company through litigation involving Maniatis except for the ownership interests in, and property held by, RNMA I.  The ownership interests in, and property of, RNMA I remain subject to the stay until the date that is 30 days after the resolution of the above-described RNMA I dispute. Management does not believe that loss is probable and, accordingly, no amounts have been accrued for this matter in the accompanying condensed consolidated financial statements.

In April 2019, the New Mexico state trial court amended an order enjoining certain individuals from taking any action with regard to certain real property in the Rio West/Albuquerque project. The amendment expanded the injunction to include Recorp/IMH from transferring any partnership ownership interests (or assets owned by these partnerships) until further order of the court. This entire case was dismissed on September 18, 2019, and all injunctions (as modified) have been terminated. The deadline to appeal the dismissal of these actions has expired.

Intercreditor Agreement Claim

The Company and certain of our subsidiaries are defendants in a case that is in the Arizona federal district court. The case arose from claims by a creditor of the Justin 123 receivership alleging breach of contract and other related claims stemming from a Partial Settlement and Intercreditor Agreement entered into among the major creditors, including the claimant and certain of our subsidiaries the a receiving proceeding. The suit seeks damages of $0.3 million, plus attorney fees and punitive damages. The Company believes that the claims are without merit and intends to vigorously defend its position. Management does not believe that any obligation it may ultimately incur would not have a material adverse effect on its financial condition or its result of operations.

Hotel Fund Obligations

If the Hotel Fund has insufficient operating cash flow to pay the Preferred Distribution in a given month, the Company is obligated to provide the funds necessary to pay the Preferred Distribution for such month. Such payment is treated as an additional capital contribution to the Hotel Fund by the Company. During the nine months ended September 30, 2019, the Company funded $1.1 million of Preferred Distributions, and from inception through September 30, 2019, the Company has funded $1.6 million. The Company also agreed to fund, in the form of common capital contributions, up to 6.0% of the Hotel Fund offering’s gross proceeds as selling commissions and up to 1.0% of the gross proceeds raised in the offering as nonaccountable expense reimbursements to broker-dealers based on the capital raised by them for the Hotel Fund. During the nine months ended September 30, 2019 and from inception through September 30, 2019, the Company paid $0.1 million to the Hotel Fund pursuant to these broker-dealer obligations.

Other

We are subject to oversight by various state and federal regulatory authorities, including, but not limited to, the Arizona Corporation Commission, the Arizona Department of Financial Institutions (Banking), and the SEC. Our income tax returns have not been examined by taxing authorities and all statutorily open years remain subject to examination.

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NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

As of September 30, 2019 and December 31, 2018, our notes payable and special assessment obligations consisted of the following (in thousands):

	September 30,			December 31,
	2019			2018
$37.0 million note payable, as amended, to MidFirst Bank secured by a first lien on MacArthur Place, interest-only payments due monthly at the 30-day LIBOR (2.00% and 2.50% at September 30, 2019 and December 31, 2018, respectively) plus between 3.54% - 3.75% depending on compensating balances and meeting certain financial thresholds and terms (5.54% and 6.04% effective rate at September 30, 2019 and December 31, 2018, respectively), matures October 1, 2020 with two one-year extension options, with construction completion and repayment guarantees provided by the Company.	$	35,455		$	20,669
$11.0 million note payable to JPMorgan Chase Funding Inc. secured by the $13.2 million first mortgage note on the property known as Broadway Tower, bearing interest at one month LIBOR plus 3.81% (5.81% as of September 30, 2019), requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.	11,000			—
$5.9 million note payable to Southwest Lending, LLC, secured by real estate in New Mexico, annual interest only payments based on prime plus 3.0% through maturity date of December 31, 2019. (8.0 % and 8.25% as of September 30, 2019 and December 31, 2018, respectively.)	5,940			5,940
Unsecured note payable under class action settlement, face amount of $10.2 million, matured and paid in full on April 28, 2019.	—			9,899
Special assessment bonds dated between 2002 and 2007, secured by the residential land located in Dakota County, Minnesota, annual interest rate ranging from 6%-7.5%, maturing various dates through 2022 (classified as held for sale as of March 31, 2018).	75			90
Total notes payable	52,470			36,598
Less: deferred financing fees	(306		)	(284		)
Notes payable, net of deferred financing fees	$	52,164		$	36,314

Interest expense for the three months ended September 30, 2019 and 2018 was $0.4 million and $0.8 million, respectively. Interest expense for the nine months ended September 30, 2019 and 2018 was $1.2 million and $2.3 million, respectively. The Company capitalized interest relating to the MacArthur Loan in the amount of $0.2 million and $1.0 million for the three and nine months ended September 30, 2019. There was no capitalized interest during 2018.

Senior Indebtedness

MacArthur Place

In October 2017, we closed on a $32.3 million acquisition and construction loan from MidFirst Bank in connection with our purchase of MacArthur Place (the “MacArthur Loan”), of which (i) $19.4 million was utilized for the purchase of MacArthur Place, (ii) approximately $10.0 million was set aside to fund planned hotel improvements, and (iii) the balance to fund interest reserves and operating capital. During the nine months ended September 30, 2019, the MacArthur Loan was modified to, among other things, increase the total loan facility to $37.0 million, thereby increase the Company’s equity commitment to $27.7 million due to projected increased renovation costs, and to establish certain additional reserve accounts in the amount of $2.0 million for the completion of certain aspects of the renovation project. The principal balance of the loan was $35.5 million and $20.7 million at September 30, 2019 and December 31, 2018, respectively. The loan bears floating interest equal to the 30-day LIBOR rate (2.00% at September 30, 2019) plus 3.54%, which may be reduced by up to 0.50% if certain conditions are met, which were met as of September 30, 2019. The loan has an initial term of three years subject to the right of the Company to extend the maturity date for twoone-year periods, provided that the loan is in good standing and upon satisfaction of certain other conditions, including payment of an extension fee equal to 0.35% of outstanding principal per extension. The Company is required to make interest-only payments during the initial three year term. During the nine months ended September 30, 2019, the Company made loan draws totaling $14.8 million, of which $13.7 million represented renovation costs and operating draws and $1.1 million represented draws against the interest reserve on the loan. The Company incurred deferred financing fees of $0.5 million which are being amortized over the term of the loan using the effective interest method.

The MacArthur Loan is secured by a deed of trust on all MacArthur Place real property and improvements, and a security interest in all furniture, fixtures and equipment, licenses and permits, and MacArthur Place related revenues. The Company agreed to provide a construction completion guaranty which shall be released upon payment of all project costs and receipt of a certificate of occupancy. In addition, the Company provided a loan repayment guaranty equal to 50% of the loan principal along with a guaranty of interest and operating deficits, as well as other customary carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum tangible net worth of $50.0 million and minimum liquidity of $5.0 million throughout the term of the loan. The Company was in compliance with these covenants and guarantees at September 30, 2019. The Company is required to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement, including a $2.0 million spa reserve to be used for the planned spa renovation which is scheduled to commence in the first quarter of 2020. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

Exchange Notes

In April 2014, we completed an offering of a five-year, 4%, unsecured notes to certain of our shareholders in exchange for common stock held by such shareholders at an exchange price of $8.02 per share (“Exchange Offering”). Upon completion of the Exchange Offering, we issued Exchange Offering notes (“EO Notes”) with a face value of $10.2 million, which were recorded by the Company at fair value of $6.4 million based on the fair value and the imputed effective yield of such notes of 14.6% (as compared to the note rate of 4%). The EO Notes matured and all outstanding principal and interest were paid on April 29, 2019.

New Mexico Land Purchase Financing

As of September 30, 2019, the Company had an outstanding note payable in the amount of $5.9 million secured by certain real estate located in New Mexico with a carrying value of $6.8 million. The note bears interest at the Prime Rate as reported by The Wall Street Journal plus 3% and requires interest only payments due annually on December 31 of each year with the principal balance and any accrued unpaid interest due upon the earlier of 1) December 31, 2019, or 2) sale of the underlying collateral property. The note may be prepaid in whole or in part without penalty, and includes certain maturity extension provisions which the Company may choose to exercise.

JPMorgan Chase Funding Inc. Master Repurchase Agreement

In the second quarter of 2019, we foreclosed on the collateral securing a defaulted mezzanine note receivable consisting of 100% of the membership interests in a limited liability company that owns a commercial real estate building in St. Louis, Missouri, known as Broadway Tower, thereby assuming its assets and liabilities, including a $13.2 million mortgage note payable secured by Broadway Tower. In a related transaction, a subsidiary of the Company purchased the $13.2 million first mortgage note. Since we own both the entity that owns the first mortgage note as well as the entity that owes this obligation, the first mortgage loan and related interest has been eliminated in consolidation. The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding. The Chase Funding master repurchase agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. . The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved. The master purchase agreement is subject to a third party loan servicing agreement.

Our notes payable and special assessment obligations have the following scheduled maturities as of September 30, 2019 (in thousands):

Year	Amount
2019	$	5,955
2020	46,481
2021	26
2022	8
Less: deferred financing costs of notes payable	(306		)
Total	$	52,164

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OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED

9 Months Ended

Sep. 30, 2019

Real Estate [Abstract]

OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED

OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED

As of September 30, 2019, we held total REO assets of $105.8 million, of which $7.4 million were held for sale, $65.1 million were held as operating properties, and $33.3 million were classified as other real estate owned. As of December 31, 2018, we held total REO assets of $75.0 million, of which $7.4 million were held for sale, $33.9 million were held as operating properties and $33.7 million were classified as other real estate owned.

As described in Note 4, on May 29, 2019, we foreclosed on the membership interests of a limited liability company that was pledged as collateral on a defaulted mezzanine note receivable. The entity owns and operates a commercial office building known as Broadway Tower, located in St. Louis, Missouri. Upon foreclosure, we acquired the membership interests in the limited liability company that owns the office building and related assets, and assumed related liabilities of Broadway Tower, all of which were recorded at fair value in accordance with GAAP. The acquired assets consist of a building, land, furniture and fixtures, operating and reserve cash, and tenant receivables totaling approximately $22.6 million. Liabilities assumed consist of trade accounts payable and accrued liabilities, and accrued interest and principal on the first mortgage loan totaling approximately $15.5 million. In accordance with ASC 842, we recorded a right of use asset and related lease liability of $0.6 million, see Note 14. As described in Note 9, we purchased the Broadway Tower first mortgage note and accrued interest.

During the nine months ended September 30, 2019, the Company sold four REO assets for $0.9 million resulting in a gain on sale of $0.2 million for the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2018, the Company sold REO assets (or portions thereof) for $8.1 million and $8.7 million (net of transaction costs) resulting in a total net gain on sale of $3.5 million and $3.9 million, respectively.

REO Planned Development and Operations

Costs related to the development, renovation or improvements of the Company’s real estate assets are generally capitalized, while costs and expenses related to operating, holding and maintaining our operating properties and REO assets are expensed as incurred. Costs that are expensed as incurred are included in operating property direct expenses and as expenses for non-operating real estate owned in the accompanying condensed consolidated statements of operations. For the three months ended September 30, 2019 and 2018, these costs and expenses were $4.8 million and $2.5 million, respectively. For the nine months ended September 30, 2019 and 2018, these costs and expenses were $11.0 million and $7.2 million, respectively. Cash outlays for capitalized costs totaled $13.4 million and $7.2 million during the nine months ended September 30, 2019 and 2018, respectively, and consisted primarily of renovation costs for MacArthur Place and New Mexico properties well renovation costs.

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BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY (Details Textual)				1 Months Ended				3 Months Ended				9 Months Ended		12 Months Ended	23 Months Ended	68 Months Ended
	Sep. 25, 2019 USD ($) $ / shares shares	Jul. 23, 2019 USD ($)	Oct. 02, 2017	Nov. 14, 2019 USD ($) Loan	May 31, 2019	Nov. 30, 2017 USD ($)	Oct. 31, 2017 USD ($)	Sep. 30, 2019 USD ($) $ / shares shares	Jun. 30, 2019 USD ($)	Mar. 31, 2019 USD ($) renewal_option	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Loan renewal_option $ / shares shares	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) Loan	Sep. 30, 2019 USD ($) $ / shares shares	Dec. 31, 2008 USD ($)	Feb. 09, 2018 shares	Jul. 31, 2014 shares
Business, Basis of Presentation and Liquidity [Line Items]
Amount of fund equity capital raised																$ 875,000,000
Accumulated deficit								$ 710,885,000				$ 710,885,000		$ 692,876,000	$ 710,885,000
Proceeds from issuance of preferred equity												6,000,000	$ 30,000,000
Debt								$ 52,164,000				$ 52,164,000			$ 52,164,000
Profit distribution to related party, monthly accruing rate								7.00%				7.00%			7.00%
Cash and cash equivalents								$ 7,447,000				$ 7,447,000		25,452,000	$ 7,447,000
REO assets acquired through foreclosure								105,800,000				105,800,000		75,000,000	105,800,000
Provision for (recovery of) credit losses, net								2,598,000			$ 0	1,463,000	$ (175,000)
Mortgages
Business, Basis of Presentation and Liquidity [Line Items]
Debt									$ 13,200,000
Debt amount									11,000,000
Held For Sale
Business, Basis of Presentation and Liquidity [Line Items]
REO assets acquired through foreclosure								7,400,000				7,400,000		7,400,000	7,400,000
Other Real Estate Owned
Business, Basis of Presentation and Liquidity [Line Items]
REO assets acquired through foreclosure								33,300,000				33,300,000		$ 33,700,000	33,300,000
MacArthur Loan
Business, Basis of Presentation and Liquidity [Line Items]
Proceeds from issuance of debt							$ 32,300,000					$ 14,800,000
Number of extensions available for loans acquired | renewal_option										2		2
Maturity term										1 year		1 year
Hotel | MacArthur Loan
Business, Basis of Presentation and Liquidity [Line Items]
Debt amount								37,000,000				$ 37,000,000			37,000,000
Hotel | MacArthur Place | MacArthur Loan
Business, Basis of Presentation and Liquidity [Line Items]
Proceeds from issuance of debt							19,400,000
Required minimum liquidity							$ 5,000,000	5,000,000.0		$ 37,000,000		5,000,000.0			5,000,000.0
Covenant compliance, reserve accounts								2,000,000		$ 2,000,000		$ 2,000,000			2,000,000
Repayment guaranty			50.00%				50.00%					50.00%
Required minimum net worth							$ 50,000,000	$ 50,000,000.0				$ 50,000,000.0			50,000,000.0
Preferred Interests | L’Auberge Fund Manager, LLC
Business, Basis of Presentation and Liquidity [Line Items]
Proceeds from private offering						$ 25,000,000						$ 22,500,000			$ 1,600,000
Private offering acquired						$ 17,800,000
Profit distribution to related party, monthly accruing rate								7.00%				7.00%			7.00%
Series B-4 Preferred Stock
Business, Basis of Presentation and Liquidity [Line Items]
Additional issue of preferred stock (in shares) | shares								1,875,000				1,875,000			1,875,000
Preferred stock, accrued and unpaid dividends, percentage	5.65%							5.65%
Preferred stock redemption price	145.00%							145.00%				145.00%
Series B-4 Preferred Stock | JPMorgan Chase Funding Inc.
Business, Basis of Presentation and Liquidity [Line Items]
Additional issue of preferred stock (in shares) | shares	1,875,000							1,875,000				1,875,000			1,875,000
Preferred stock per share (in dollars per share) | $ / shares	$ 3.20							$ 3.20				$ 3.20			$ 3.20
Proceeds from issuance of preferred equity	$ 6,000,000							$ 6,000,000
Series B Preferred Stock
Business, Basis of Presentation and Liquidity [Line Items]
Preferred stock redemption price												150.00%
Series B Preferred Stock | JPMorgan Chase Funding Inc.
Business, Basis of Presentation and Liquidity [Line Items]
Additional issue of preferred stock (in shares) | shares																	2,352,941
Series B-1 and B-2 Cumulative Convertible Preferred Stock
Business, Basis of Presentation and Liquidity [Line Items]
Additional issue of preferred stock (in shares) | shares																		8,200,000
Series B-1 and B-2 Cumulative Convertible Preferred Stock | JPMorgan Chase Funding Inc.
Business, Basis of Presentation and Liquidity [Line Items]
Proceeds from issuance of preferred equity		$ 2,600,000										$ 2,600,000
Commitment To Fund Equity | Hotel | MacArthur Loan
Business, Basis of Presentation and Liquidity [Line Items]
Commitment to provide funds								$ 27,700,000				$ 27,700,000			$ 27,700,000
Mortgage Receivable
Business, Basis of Presentation and Liquidity [Line Items]
Number of loans | Loan												4		6
Mortgage loans, net												$ 11,700,000		$ 23,200,000
Mortgage Receivable | Mezzanine Loan
Business, Basis of Presentation and Liquidity [Line Items]
Securities received as collateral									$ 7,600,000
Pledged equity interest, collateral percent					100.00%				100.00%
Mortgage loans, net												$ 8,200,000
Subsequent Event
Business, Basis of Presentation and Liquidity [Line Items]
Provision for (recovery of) credit losses, net				$ 2,600,000
Subsequent Event | Mortgage Receivable | Mezzanine Loan
Business, Basis of Presentation and Liquidity [Line Items]
Number of loans | Loan				1
Mortgage loans, net				$ 12,300,000

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MORTGAGE LOANS, NET (Details)	1 Months Ended		3 Months Ended			9 Months Ended		12 Months Ended
	Nov. 14, 2019 USD ($) Loan	May 31, 2019	Sep. 30, 2019 USD ($) Loan	Jun. 30, 2019	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Loan	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) Loan
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Mortgage loan income, net			$ 340,000		$ 709,000	$ 1,438,000	$ 1,976,000
Provision for (recovery of) credit losses, net			$ 2,598,000		0	$ 1,463,000	(175,000)
Mortgage Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | Loan						4		6
Mortgage loans, net						$ 11,700,000		$ 23,200,000
Performing Financing Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Mortgage loans on real estate number of loans, outstanding principal balance (in loans) | Loan								3
Performing Financing Receivable | Mortgage Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | Loan						2
Mortgage loans weighted average interest rate (in percentage)			9.80%			9.80%		9.40%
Number of loans repaid | Loan						1
Loan principal amount			$ 3,000,000			$ 3,000,000
Nonperforming Financing Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Mortgage loans on real estate number of loans, outstanding principal balance (in loans) | Loan			2			2		3
Mortgage loans on real estate, outstanding principal amount			$ (15,300,000)			$ (15,300,000)		$ (13,100,000)
Fully Reserved Loan | Nonperforming Financing Receivable | Mortgage Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Mortgage loans, net						$ 0
Mortgage loans on real estate number of loans, outstanding principal balance (in loans) | Loan			2			2
Mezzanine Loan | Mortgage Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Mortgage loans, net						$ 8,200,000
Number of loans foreclosed | Loan						1
Pledged equity interest, collateral percent		100.00%		100.00%
Originated Construction Loan | Mortgage Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loan principal amount					$ 13,100,000		$ 13,100,000
Construction loan funded			$ 2,000,000			$ 2,000,000
Loan remaining commitment			$ 11,100,000			$ 11,100,000
Subsequent Event
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Provision for (recovery of) credit losses, net	$ 2,600,000
Subsequent Event | Mezzanine Loan | Mortgage Receivable
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | Loan	1
Mortgage loans, net	$ 12,300,000

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NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Schedule of Debt

As of September 30, 2019 and December 31, 2018, our notes payable and special assessment obligations consisted of the following (in thousands):

	September 30,			December 31,
	2019			2018
$37.0 million note payable, as amended, to MidFirst Bank secured by a first lien on MacArthur Place, interest-only payments due monthly at the 30-day LIBOR (2.00% and 2.50% at September 30, 2019 and December 31, 2018, respectively) plus between 3.54% - 3.75% depending on compensating balances and meeting certain financial thresholds and terms (5.54% and 6.04% effective rate at September 30, 2019 and December 31, 2018, respectively), matures October 1, 2020 with two one-year extension options, with construction completion and repayment guarantees provided by the Company.	$	35,455		$	20,669
$11.0 million note payable to JPMorgan Chase Funding Inc. secured by the $13.2 million first mortgage note on the property known as Broadway Tower, bearing interest at one month LIBOR plus 3.81% (5.81% as of September 30, 2019), requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.	11,000			—
$5.9 million note payable to Southwest Lending, LLC, secured by real estate in New Mexico, annual interest only payments based on prime plus 3.0% through maturity date of December 31, 2019. (8.0 % and 8.25% as of September 30, 2019 and December 31, 2018, respectively.)	5,940			5,940
Unsecured note payable under class action settlement, face amount of $10.2 million, matured and paid in full on April 28, 2019.	—			9,899
Special assessment bonds dated between 2002 and 2007, secured by the residential land located in Dakota County, Minnesota, annual interest rate ranging from 6%-7.5%, maturing various dates through 2022 (classified as held for sale as of March 31, 2018).	75			90
Total notes payable	52,470			36,598
Less: deferred financing fees	(306		)	(284		)
Notes payable, net of deferred financing fees	$	52,164		$	36,314

Contractual Obligation Fiscal Year Maturity Schedule

Our notes payable and special assessment obligations have the following scheduled maturities as of September 30, 2019 (in thousands):

Year	Amount
2019	$	5,955
2020	46,481
2021	26
2022	8
Less: deferred financing costs of notes payable	(306		)
Total	$	52,164

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Investment in Unconsolidated Entities

Investment in Unconsolidated Entities

The Company holds ownership interests in an entity that does not meet the criteria under GAAP for consolidation. For this entity, the Company utilizes the equity method of accounting and records the net income and losses from the unconsolidated entity, as applicable, in net income attributable to non-controlling interests in the accompanying consolidated statements of operations.

Operating Properties Acquired Through Foreclosure

Operating Properties Acquired Through Foreclosure

Operating properties acquired through foreclosure consist of certain operating assets that the Company has elected to hold for on-going operations and are recorded at fair value at the time of foreclosure.

Lessee Accounting

Lessee Accounting

As further discussed below, the Company adopted the provisions of Accounting Standards Update 2016-02, Leases, effective January 1, 2019. We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are recorded in other assets and operating lease liabilities are recorded in accounts payable and other accrued expenses in the accompanying condensed consolidated balance sheet. Finance leases, none of which existed as of the adoption of Accounting Standards Codification (“ASC”) 842 or as of September 30, 2019, would be reflected in property and equipment and other liabilities in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

Lessor Accounting

Lessor Accounting

On May 29, 2019, the Company acquired a commercial real estate building through a foreclosure action known as Broadway Tower located in St. Louis, Missouri which leases office space to various tenants. The assumed leases were previously accounted for according to ASC 840 and were classified as operating leases.  Upon transitioning these leases from being accounted for according to ASC 840 to being accounted for under ASC 842, the Company did not reassess the lease classification as allowed under the practical expedient package elected by the Company.

Pursuant to ASC 842 – 30, the Company will classify a lease as a sales – type lease if: (i) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (ii) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of September 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a sale – type lease.

Pursuant to ASC 842 – 30, when none of the sales-type lease classification criteria are met, a lessor would classify the lease as a direct financing lease when both of the following criteria are met: (i) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all (90% or more) of the fair value of the underlying asset and (ii) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. As of September 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a financing lease.

Pursuant to ASC 842 – 30, a lessor would classify a lease as an operating lease when none of the sales-type or direct financing lease classification criteria are met. As of September 30, 2019, all leases of the Company’s rental properties were classified as operating leases.

The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as commercial real estate rental revenue. Non-lease components included in commercial real estate rental revenue include certain tenant reimbursements for maintenance services, (including common-area maintenance services or “CAM”). Variable consideration for costs that are not contract components (e.g., real estate taxes, utilities) are excluded from total consideration and would be recorded as incurred by the lessee and earned by the lessor. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. Therefore, Accounting Standards Codification Topic 842, Leases (“ASC 842”), has been applied to these lease contracts for both types of components.

Commercial Real Estate Rental Revenue

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space to tenants, common area maintenance charges and parking space rental. Leases with tenants are classified as operating leases and revenue is recognized on a straight line basis over the term of the respective leases. The cumulative differences between rental income recognized in the Company’s condensed unaudited consolidated statements of operations and contractual payment terms have been recorded as deferred rental income and presented on the accompanying condensed consolidated balance sheets.

The Company regularly reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon adoption of ASU 2016-02, effective January 1, 2019, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental income and does not record an allowance for uncollectible accounts.

Funds Held by Lender and Restricted Cash

Funds Held by Lender and Restricted Cash

The balance sheet item, “Funds held by lender and restricted cash”, includes amounts maintained in escrow or other restricted accounts deposited into reserve accounts held by lenders for contractually specified purposes, which includes property taxes and insurance.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s ASC. The Company considers the applicability and impact of all ASUs.

Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11 which provides an alternative transition method that allows entities to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has adopted the requirements of ASU 2016-02 on January 1, 2019, the first day of fiscal year 2019, and using the optional transition method. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we did not have to reassess whether an arrangement contains a lease, we carried forward our previous classification of leases as operating, and we did not have to reassess previously recorded initial direct costs. There was an increase in assets of $1.6 million and liabilities of $1.7 million due to the recognition of the required ROU asset and corresponding liability for all lease obligations that are currently classified as operating leases with the difference of $0.1 million related to existing deferred rent that reduced the ROU asset recorded. The adoption of this standard did not have an impact in our condensed consolidated statements of operations.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company has adopted the requirements of this accounting pronouncement in fiscal 2019.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Recently, the FASB voted to delay the effective date of ASU 2016-13 to January 1, 2023 for smaller reporting companies with a revised ASU expected in the fourth quarter of 2019. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues
Operating property revenue	$ 4,082,000	$ 2,085,000	$ 6,195,000	$ 5,753,000
Mortgage loan income, net	340,000	709,000	1,438,000	1,976,000
Management fees, investment and other income	129,000	32,000	486,000	323,000
Total revenue	4,551,000	2,826,000	8,119,000	8,052,000
Operating Expenses
Operating property direct expenses (exclusive of interest and depreciation)	4,703,000	2,364,000	10,710,000	6,699,000
Expenses for non-operating real estate owned	72,000	151,000	246,000	519,000
Professional fees	1,185,000	1,125,000	3,671,000	2,754,000
General and administrative expenses	2,463,000	1,788,000	5,928,000	5,376,000
Interest expense	427,000	775,000	1,218,000	2,300,000
Depreciation and amortization expense	879,000	281,000	1,470,000	925,000
Total operating expenses	9,729,000	6,484,000	23,243,000	18,573,000
Provision for Credit Losses, Impairment, Gain Disposal of Assets, and Other
Gain on disposal of assets	(223,000)	(3,543,000)	(244,000)	(3,938,000)
Provision for (recovery of) credit losses, net	2,598,000	0	1,463,000	(175,000)
Unrealized loss on derivatives	39,000	0	330,000	0
Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other	2,414,000	(3,543,000)	1,549,000	(4,113,000)
Total costs and expenses	12,143,000	2,941,000	24,792,000	14,460,000
Loss before provision for income tax	(7,592,000)	(115,000)	(16,673,000)	(6,408,000)
Income tax provision	0	0	0	0
Net Loss	(7,592,000)	(115,000)	(16,673,000)	(6,408,000)
Net (income) loss attributable to non-controlling interests	(893,000)	(1,105,000)	(1,334,000)	(990,000)
Cash dividends on Series B redeemable convertible preferred stock	(1,320,000)	(655,000)	(2,609,000)	(1,894,000)
Deemed dividend on Series B redeemable convertible preferred stock	(366,000)	(920,000)	(2,255,000)	(2,651,000)
Cash dividends on Series A redeemable preferred stock	(422,000)	(422,000)	(1,251,000)	(569,000)
Net Loss attributable to common shareholders	$ (10,593,000)	$ (3,217,000)	$ (24,122,000)	$ (12,512,000)
Net Loss per common share
Basic and Diluted (in dollars per share)	$ (0.64)	$ (0.19)	$ (1.47)	$ (0.75)
Weighted average common shares outstanding - basic and diluted (in shares)	16,525,282	16,726,610	16,431,448	16,696,201

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SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Investment in Unconsolidated Entities

The Company holds ownership interests in an entity that does not meet the criteria under GAAP for consolidation. For this entity, the Company utilizes the equity method of accounting and records the net income and losses from the unconsolidated entity, as applicable, in net income attributable to non-controlling interests in the accompanying consolidated statements of operations.

Redeemable Convertible Preferred Stock

During the nine months ended September 30, 2019, the Company issued an additional 1,875,000shares of Series B-4 Preferred Stock. The Series B-4 Preferred Stock is convertible into common stock on a one-to-one basis, and is redeemable five years from the issuance date at the option of the holder for a redemption price equal to the greater of 145% of the original purchase price of the preferred stock or tangible net book value per share at redemption. The Series B-4 Preferred Stock is reported in the mezzanine equity section of the accompanying condensed consolidated balance sheet. Since the Series B-4 Preferred Stock does not have a mandatory redemption date (it is at the option of the holder), under applicable accounting guidance, the Company elected to amortize the redemption premium over the five year redemption period using the effective interest method and recording this as a deemed dividend, rather than recording the entire accretion of the redemption premium as a deemed dividend upon issuance of the preferred stock. The Company is required to assess whether the preferred stock is redeemable at each reporting period.

Operating Properties Acquired Through Foreclosure

Operating properties acquired through foreclosure consist of certain operating assets that the Company has elected to hold for on-going operations and are recorded at fair value at the time of foreclosure.

Leases

Lessee Accounting

As further discussed below, the Company adopted the provisions of Accounting Standards Update 2016-02, Leases, effective January 1, 2019. We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are recorded in other assets and operating lease liabilities are recorded in accounts payable and other accrued expenses in the accompanying condensed consolidated balance sheet. Finance leases, none of which existed as of the adoption of Accounting Standards Codification (“ASC”) 842 or as of September 30, 2019, would be reflected in property and equipment and other liabilities in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

Lessor Accounting

On May 29, 2019, the Company acquired a commercial real estate building through a foreclosure action known as Broadway Tower located in St. Louis, Missouri which leases office space to various tenants. The assumed leases were previously accounted for according to ASC 840 and were classified as operating leases.  Upon transitioning these leases from being accounted for according to ASC 840 to being accounted for under ASC 842, the Company did not reassess the lease classification as allowed under the practical expedient package elected by the Company.

Pursuant to ASC 842 – 30, the Company will classify a lease as a sales – type lease if: (i) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (ii) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of September 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a sale – type lease.

Pursuant to ASC 842 – 30, when none of the sales-type lease classification criteria are met, a lessor would classify the lease as a direct financing lease when both of the following criteria are met: (i) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all (90% or more) of the fair value of the underlying asset and (ii) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. As of September 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a financing lease.

Pursuant to ASC 842 – 30, a lessor would classify a lease as an operating lease when none of the sales-type or direct financing lease classification criteria are met. As of September 30, 2019, all leases of the Company’s rental properties were classified as operating leases.

The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as commercial real estate rental revenue. Non-lease components included in commercial real estate rental revenue include certain tenant reimbursements for maintenance services, (including common-area maintenance services or “CAM”). Variable consideration for costs that are not contract components (e.g., real estate taxes, utilities) are excluded from total consideration and would be recorded as incurred by the lessee and earned by the lessor. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. Therefore, Accounting Standards Codification Topic 842, Leases (“ASC 842”), has been applied to these lease contracts for both types of components.

The Company has elected to present sales tax and other tax collections in the condensed consolidated statements of operations on a net basis and, accordingly, such taxes are excluded from reported revenues.

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space to tenants, common area maintenance charges and parking space rental. Leases with tenants are classified as operating leases and revenue is recognized on a straight line basis over the term of the respective leases. The cumulative differences between rental income recognized in the Company’s condensed unaudited consolidated statements of operations and contractual payment terms have been recorded as deferred rental income and presented on the accompanying condensed consolidated balance sheets.

The Company regularly reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon adoption of ASU 2016-02, effective January 1, 2019, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental income and does not record an allowance for uncollectible accounts.

Funds Held by Lender and Restricted Cash

The balance sheet item, “Funds held by lender and restricted cash”, includes amounts maintained in escrow or other restricted accounts deposited into reserve accounts held by lenders for contractually specified purposes, which includes property taxes and insurance. The following table provides a reconciliation of cash, cash equivalents, and funds held by lender and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30,		December 31,
	2019		2018
Cash and cash equivalents	$	7,447	$	25,452
Funds held by lender and restricted cash	3,729		198
Total cash, cash equivalents, and restricted cash	$	11,176	$	25,650

The balance of funds held by lender and restricted cash includes property tax, insurance and construction related reserves for the MacArthur Loan totaling $2.5 million and $0.2 million at September 30, 2019 and December 31, 2018, respectively. The September 30, 2019 balance also includes $1.2 million in an account maintained by the loan servicer on the Broadway Tower mortgage loan and is set aside for capital projects and tenant improvements. This account was acquired in connection with our foreclosure and acquisition of the Broadway Tower commercial office building in St. Louis, Missouri in the second quarter of 2019.

Mortgage Investment Revenue Recognition

See Note 3 for the Company’s accounting policy for Mortgage Investment Revenue Recognition.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s ASC. The Company considers the applicability and impact of all ASUs.

Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11 which provides an alternative transition method that allows entities to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has adopted the requirements of ASU 2016-02 on January 1, 2019, the first day of fiscal year 2019, and using the optional transition method. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we did not have to reassess whether an arrangement contains a lease, we carried forward our previous classification of leases as operating, and we did not have to reassess previously recorded initial direct costs. There was an increase in assets of $1.6 million and liabilities of $1.7 million due to the recognition of the required ROU asset and corresponding liability for all lease obligations that are currently classified as operating leases with the difference of $0.1 million related to existing deferred rent that reduced the ROU asset recorded. The adoption of this standard did not have an impact in our condensed consolidated statements of operations.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company has adopted the requirements of this accounting pronouncement in fiscal 2019.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Recently, the FASB voted to delay the effective date of ASU 2016-13 to January 1, 2023 for smaller reporting companies with a revised ASU expected in the fourth quarter of 2019. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

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NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS (Details Textual)		1 Months Ended		3 Months Ended				9 Months Ended		12 Months Ended
	Oct. 02, 2017	Oct. 31, 2017 USD ($)	Apr. 30, 2014 USD ($) $ / shares	Sep. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Mar. 31, 2019 USD ($) renewal_option	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) renewal_option	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Interest expense				$ 427,000			$ 775,000	$ 1,218,000	$ 2,300,000
Non-cash interest costs capitalized to operating property								1,000,000	$ 0
Debt				52,164,000				52,164,000
MacArthur Loan
Debt Instrument [Line Items]
Non-cash interest costs capitalized to operating property				200,000				1,000,000		$ 0
Proceeds from issuance of debt		$ 32,300,000						$ 14,800,000
Interest rate reduction, other conditions								0.50%
Debt instrument, term								3 years
Number of extensions available for loans acquired | renewal_option						2		2
Maturity term						1 year		1 year
Extension fee		0.35%
Deferred financing fees				500,000				$ 500,000
Exchange Offering
Debt Instrument [Line Items]
Maturity term			5 years
Stated interest rate			4.00%
Debt offered In exchange for common stock shares exchange price per share | $ / shares			$ 8.02
Exchange Offering Notes
Debt Instrument [Line Items]
Debt amount			$ 10,200,000
Stated interest rate			4.00%
Effective rate (percentage)			14.60%
Notes payable, fair value disclosure			$ 6,400,000
New Mexico Land Purchase Financing | Notes Payable
Debt Instrument [Line Items]
Debt amount				5,900,000				5,900,000
Debt				6,800,000				$ 6,800,000
JPMorgan Chase Funding Inc.
Debt Instrument [Line Items]
Variable rate					3.81%
Mortgage loans in process of foreclosure, notes purchased					$ 13,200,000
Loan from JPM Chase Funding, Inc., (a related party) for purchase first mortgage on operating property					$ 11,000,000
Extension term					1 year
LIBOR | MacArthur Loan
Debt Instrument [Line Items]
Annual interest rate								2.00%
Variable rate								3.54%
Prime Rate | New Mexico Land Purchase Financing | Notes Payable
Debt Instrument [Line Items]
Variable rate								3.00%
Hotel | MacArthur Loan
Debt Instrument [Line Items]
Debt amount				37,000,000				$ 37,000,000
Renovation Cost | MacArthur Loan
Debt Instrument [Line Items]
Proceeds from issuance of debt								13,700,000
Interest Reserve | MacArthur Loan
Debt Instrument [Line Items]
Proceeds from issuance of debt								1,100,000
MacArthur Place | Hotel | MacArthur Loan
Debt Instrument [Line Items]
Proceeds from issuance of debt		$ 19,400,000
Covenant compliance, reserve accounts				2,000,000		$ 2,000,000		$ 2,000,000
Repayment guaranty	50.00%	50.00%						50.00%
Required minimum net worth		$ 50,000,000		50,000,000.0				$ 50,000,000.0
Required minimum liquidity		5,000,000		5,000,000.0		$ 37,000,000		5,000,000.0
MacArthur Place | Hotel Improvements | MacArthur Loan
Debt Instrument [Line Items]
Proceeds from issuance of debt		$ 10,000,000
MacArthur Place | Spa Renovation | MacArthur Loan
Debt Instrument [Line Items]
Covenant compliance, reserve accounts				2,000,000.0				2,000,000.0
Continuing Operations
Debt Instrument [Line Items]
Debt				52,470,000				52,470,000		36,598,000
Deferred financing fees				306,000				306,000		284,000
Continuing Operations | MacArthur Loan | Secured Debt
Debt Instrument [Line Items]
Debt				35,500,000				35,500,000		$ 20,700,000
Commitment To Fund Equity | Hotel | MacArthur Loan
Debt Instrument [Line Items]
Commitment to provide funds				$ 27,700,000				$ 27,700,000
Mortgage Receivable | Mezzanine Loan | JPMorgan Chase Funding Inc.
Debt Instrument [Line Items]
Pledged equity interest, collateral percent					100.00%

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STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE (Details 1) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Net loss	$ (7,592)	$ (115)	$ (16,673)	$ (6,408)
Net (income) loss attributable to non-controlling interest	(893)	(1,105)	(1,334)	(990)
Preferred dividends	(2,108)	(1,997)	(6,115)	(5,114)
Net Loss attributable to common shareholders	$ (10,593)	$ (3,217)	$ (24,122)	$ (12,512)
Weighted average common shares outstanding for basic and diluted earnings per common share (in shares)	16,525,282	16,726,610	16,431,448	16,696,201
Basic and diluted earnings per common share:
Net loss per share (in dollars per share)	$ (0.51)	$ (0.07)	$ (1.10)	$ (0.44)
Preferred dividends per share (in dollars per share)	(0.13)	(0.12)	(0.37)	(0.31)
Basic and diluted, continuing operations (in dollars per share)	$ (0.64)	$ (0.19)	$ (1.47)	$ (0.75)

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LEASES (Details 2) $ in Thousands	Sep. 30, 2019 USD ($)
Leases [Abstract]
Remainder of 2019	$ 870
2020	3,744
2021	3,796
2022	3,416
2023	2,306
Thereafter	3,639
Total	$ 17,771

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INTANGIBLE ASSETS AND GOODWILL (Details 3) $ in Thousands	Sep. 30, 2019 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2019	$ 70
2020	213
2021	13
2022	13
2023	13
Thereafter	9
Total	$ 331

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RELATED PARTY TRANSACTIONS AND COMMITMENTS (Details)						1 Months Ended		3 Months Ended		9 Months Ended		12 Months Ended
	Aug. 14, 2019 USD ($)	Jul. 30, 2019 USD ($)	Oct. 17, 2017 USD ($)	Oct. 16, 2017 USD ($)	Dec. 31, 2010	Nov. 14, 2019 USD ($)	Jul. 31, 2014	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) payment	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Related Party Transaction [Line Items]
Debt								$ 52,164,000		$ 52,164,000
Mr. Bain
Related Party Transaction [Line Items]
Number of future payments | payment										2
Amount of future payment one										$ 250,000
Mr. Bain | ITH Consulting Services Agreement
Related Party Transaction [Line Items]
Bonus payment for services								83,000
Mr. Bain | New Mexico Asset Consulting Agreement
Related Party Transaction [Line Items]
Bonus payment for services								15,000
Mr. Bain | Board of Directors Chairman and CEO
Related Party Transaction [Line Items]
Bonus payment for services										350,000		$ 600,000
CEO Legacy Fees
Related Party Transaction [Line Items]
Legacy fees										100,000	$ 34,600
CEO Legacy Fees | CEO
Related Party Transaction [Line Items]
Percentage of carrying value used to calculate legacy assets performance fee					110.00%
Legacy fees								100,000	$ 35,000
Juniper Capital Partners Llc
Related Party Transaction [Line Items]
Consulting agreement initial period							3 years
Consulting agreement renewable terms			2 years				2 years
JCP Realty Advisors, LLC
Related Party Transaction [Line Items]
Percentage of carrying value used to calculate legacy assets performance fee							110.00%
Legacy fees								0	$ 0	100,000	200,000
Annual consulting fees			$ 500,000	$ 600,000
Origination fee							1.25%
Percentage of legacy assets performance fee							5.50%
Consulting fees										200,000	$ 300,000
Unconsolidated Partnerships
Related Party Transaction [Line Items]
Maximum borrowing capacity								5,000,000		5,000,000
Notes receivable								$ 5,000,000		$ 5,000,000
Effective rate (percentage)								7.50%		7.50%
Prime Rate | Minimum | Unconsolidated Partnerships
Related Party Transaction [Line Items]
Variable rate										2.00%
Prime Rate | Maximum | Unconsolidated Partnerships
Related Party Transaction [Line Items]
Variable rate										8.00%
Secured Debt | JPMorgan Chase Funding Inc.
Related Party Transaction [Line Items]
Debt								$ 13,200,000		$ 13,200,000
Debt amount								11,000,000		$ 11,000,000
Secured Debt | LIBOR | JPMorgan Chase Funding Inc.
Related Party Transaction [Line Items]
Variable rate										3.81%
ITH Partners | Mr. Bain
Related Party Transaction [Line Items]
Consulting services agreement period		90 days
Consulting services agreement renewal period		30 days
ITH Partners | Mr. Bain | ITH Consulting Services Agreement
Related Party Transaction [Line Items]
Fixed monthly fee for ITH Consulting for selling New Mexico Assets		$ 30,000
ITH Partners | Mr. Bain | New Mexico Asset Consulting Agreement
Related Party Transaction [Line Items]
Fixed monthly fee for ITH Consulting for selling New Mexico Assets		$ 5,000
Juniper Investment Advisors, LLC
Related Party Transaction [Line Items]
Consulting fees								52,000		$ 52,000
Performance fee percent	20.00%
Investment return percent	7.00%
Expense reimbursement								33,000		$ 33,000
Juniper Investment Advisors, LLC | Minimum
Related Party Transaction [Line Items]
Management fee percent	1.00%
Juniper Investment Advisors, LLC | Maximum
Related Party Transaction [Line Items]
Management fee percent	1.50%
Real Estate Loan | Juniper New Mexico, LLC
Related Party Transaction [Line Items]
Debt	$ 15,000,000
Commitment funded								2,600,000
Real Estate Loan | Maximum | Juniper New Mexico, LLC
Related Party Transaction [Line Items]
Total commitment								$ 3,900,000
Subsequent Event | Real Estate Loan | Juniper New Mexico, LLC
Related Party Transaction [Line Items]
Commitment funded						$ 1,000,000

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VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES (Details) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 14, 2019 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Project	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) Project
Schedule of Equity Method Investments [Line Items]
Number of projects | Project				2		2
Profit distribution to related party, monthly accruing rate		7.00%		7.00%
Profit distribution to related party		$ 400	$ 100	$ 1,005	$ 205
L’Auberge Fund Manager, LLC
Schedule of Equity Method Investments [Line Items]
Combined equity		26,400		26,400
Cash and Cash Equivalents
Schedule of Equity Method Investments [Line Items]
Total assets		100,143		100,143		$ 85,240
Real Estate and Related Assets
Schedule of Equity Method Investments [Line Items]
Total liabilities		58,205		58,205		$ 37,770
Other Assets
Schedule of Equity Method Investments [Line Items]
Net loss		(393)	$ (262)	(6,433)	$ (786)
Juniper New Mexico, LLC | Mezzanine Loan
Schedule of Equity Method Investments [Line Items]
Debt		15,000		15,000
Investments total commitment		3,900		$ 3,900
Commitment funded		$ 2,600
Subsequent Event | Juniper New Mexico, LLC | Mezzanine Loan
Schedule of Equity Method Investments [Line Items]
Commitment funded	$ 1,000

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INTANGIBLE ASSETS AND GOODWILL (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Finite-Lived and Indefinite-Lived Intangible Assets Acquired as Part of Business Combination

The changes in the carrying amount of intangibles and goodwill allocated to our Hospitality and Entertainment Operations segment for the nine months ended September 30, 2019 is as follows (in thousands):

	Goodwill		Other intangibles, net
Balance at December 31, 2018	$	15,357	$	641
Reductions:
Amortization expense	—		(210		)
Balance at September 30, 2019	$	15,357	$	431

A summary of our intangible assets and goodwill as of September 30, 2019 and December 31, 2018 is as follows (in thousands):

	Gross Carrying Amount				Accumulated Amortization						Net Carrying Amount
	September 30,		December 31,		September 30,			December 31,			September 30,		December 31,
	2019		2018		2019			2018			2019		2018
Amortizing intangible assets:
Trade name and other	$	90	$	90	$	(26	)	$	(16	)	$	64	$	74
Customer relationships	800		800		(533		)	(333		)	267		467
Non-amortizing intangible assets:
Liquor license	100		100		—			—			100		100
Goodwill	15,357		15,357		—			—			15,357		15,357
	$	16,347	$	16,347	$	(559	)	$	(349	)	$	15,788	$	15,998

Finite-lived Intangible Assets Amortization Expense

As of September 30, 2019, expected amortization expense for our purchased amortizing intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year	Amount
2019	$	70
2020	213
2021	13
2022	13
2023	13
Thereafter	9
Total	$	331

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SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 7,447	$ 25,452
Funds held by lender and restricted cash	3,729	198
Total cash, cash equivalents, and restricted cash	11,176	25,650	$ 36,628	$ 11,932
Restricted cash and cash equivalents	3,729	198
MacArthur Loan
Cash and Cash Equivalents [Line Items]
Restricted cash and cash equivalents	2,500	$ 200
Broadway Tower
Cash and Cash Equivalents [Line Items]
Restricted cash acquired through foreclosure	$ 1,200

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STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Common Stock

Shares of Common Stock, Class B Common Stock, Class C Common Stock, and Class D Common Stock share proportionately in our earnings and losses attributable to common shareholders. There are no shares of Class D Common Stock outstanding as of September 30, 2019 or December 31, 2018.

Preferred Stock

In July 2014, the Company issued a total of 8.2 million shares of the Company’s Series B-1 and B-2 Cumulative Convertible Preferred Stock to certain investor groups in exchange for $26.4 million. Except for certain voting and transfer rights, the rights and obligations of the Series B-1 Preferred Stock and Series B-2 Preferred Stock are substantially the same

On February 9, 2018, Chase Funding purchased 2,352,941 shares of the Company’s Series B-3 Cumulative Convertible Preferred Stock (“Series B-3 Preferred Stock”) for a total purchase price of $8.0 million. The Series B-3 Preferred Stock contains redemption features similar in all material respects to those of all Series B-1 and B-2 Cumulative Convertible Preferred.

On September 25, 2019, Chase Funding purchased 1,875,000 shares of our Series B-4 Preferred Stock (the “Series B-4 Preferred Stock” and collectively with the Series B-1 Preferred Stock, Series B-2 Preferred Stock, and Series B-3 Preferred Stock, the “Series B Preferred Stock”), at a purchase price of $3.20 per share, for a total purchase price of $6.0 million. Dividends on the Series B-4 Preferred Stock are cumulative and accrue from the issue date and compound quarterly at the rate of 5.65% of the issue price per year, and are payable quarterly in arrears. Holders of the Series B-4 Preferred Stock are entitled to receive a liquidation preference of 145% of the sum of the original price per share of Series B-4 Preferred Stock plus all accrued and unpaid dividends. The Series B-4 Preferred Stock contains redemption features similar in all material respects to the other Series B Preferred Stock.

On July 23, 2019, with an effective date of April 1, 2019, we entered into a Deferral and Consent agreement with the holders of our Series B Preferred Stock pursuant to which they agreed to a one-year extension of redemption date for shares of our Series B-1 and B-2 Preferred Stock they respectively hold. A cash payment in the aggregate amount of $2.6 million is due and payable to the holders of the Series B-1 and B-2 Preferred Stock on July 24, 2020 whether or not a redemption is requested.

Concurrent with Chase Funding’s purchase of our Series B-3 Cumulative Convertible Preferred Stock, the Company issued to Chase Funding a warrant to acquire up to 600,000 shares of the Company’s common stock (the “JPM Warrant”). The JPM Warrant is exercisable at any time on or after February 9, 2021 for a two (2) year period, and has an exercise price of $2.25 per share. The JPM Warrant provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions based on future corporate events. The JPM Warrant is exercisable in cash, and subject to certain conditions may also be exercised on a cashless basis. The warrant is classified in stockholders’ equity under the applicable guidance and were recorded at relative fair value at issuance.

Series A Redeemable Preferred Stock Issuance

On May 31, 2018, Chase Funding purchased 22,000 shares of the Company’s Series A Senior Redeemable Preferred Stock (the “Series A Preferred Stock”) at a purchase price of $1,000 per share, for a total purchase price of $22.0 million.

The Series A Preferred Stock ranks senior with respect to dividend and redemption rights and rights upon liquidation, dissolution or winding up of the Company to all other classes or series of shares of the Company’s preferred and common stock and to all other equity securities issued by the Company from time to time. The Series A Preferred Stock is non-voting stock. Holders of the Series A Preferred Stock are entitled to receive a liquidation preference equal to the sum of the initial purchase price of the Series A Preferred Stock plus all accrued and unpaid dividends. Dividends on the Series A Preferred Stock are cumulative and accrue from the issue date at the rate of 7.5% of the issue price per year, payable quarterly in arrears on or before the last day of each calendar quarter. The Company has certain call rights with respect to the Series A Preferred Stock and the holders of Series A Preferred Stock have certain put rights which includes an acceleration of the put right if the Company is required to redeem any shares of junior securities in the event of certain non-compliance events as described in the Company’s Series B Preferred Certificate of Designation.

Our Series B Preferred Stock and Series A Preferred Stock are classified as mezzanine equity in the accompanying condensed consolidated balance sheets.

Treasury Stock

On January 11, 2019, the Company concluded a tender offer to purchase up to 477,170 shares of Class B Common Stock and 22,830 shares of Class C common stock for $2.00 per share. The tender offer was over-subscribed and the 500,000 shares were purchased on a pro rata basis among the participating shareholders. The repurchase of these shares was treated as a treasury stock repurchase as reflected in the condensed consolidated balance sheet.

Share-Based Compensation

During the nine months ended September 30, 2019, the Company issued 332,722 shares of common stock pursuant to previous restricted stock awards. The Company granted 74,405 shares of restricted stock (for which certain tax elections were taken subsequent to September 30, 2019) and 117,449 stock options during the nine months ended September 30, 2019.

As of September 30, 2019, there were (i) 1,152,361 stock options outstanding, of which 1,046,196 shares were fully vested, (ii) 2,600,000 unvested stock warrants outstanding; and (iii) 152,228 shares of unvested restricted stock grants outstanding, net of tax elections taken. Vested restricted stock grants have been issued and are included in outstanding common stock.

Net stock-based compensation expense relating to the stock-based awards was $0.3 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $0.4 million for the nine months ended September 30, 2019 and 2018, respectively. We did not receive any cash from option or warrant exercises during the three or nine months ended September 30, 2019 or 2018. As of September 30, 2019, there was $0.3 million of unrecognized compensation cost related to all unvested equity based awards that is expected to be recognized as a charge to earnings over a weighted-average vesting period of 1.31 years.

Net Income (Loss) Per Share

The Company has adopted the two-class computation method, and thus includes all participating securities in the computation of basic shares for the periods in which the Company has net income available to common shareholders. A participating security is defined as an unvested share-based payment award containing non-forfeitable rights to dividends regardless of whether or not the awards ultimately vest or expire. Net losses are not allocated to participating securities unless the holder has a contractual obligation to share in the losses.

The following table presents a reconciliation of net loss to net loss attributable to common shareholders used in the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands, except for per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Earnings allocable to common shares:
Numerator - Loss Attributable to Common Shareholders:
Net loss	$	(7,592	)	$	(115	)	$	(16,673	)	$	(6,408	)
Net (income) loss attributable to non-controlling interest	(893		)	(1,105		)	(1,334		)	(990		)
Preferred dividends	(2,108		)	(1,997		)	(6,115		)	(5,114		)
Net loss attributable to common shareholders	$	(10,593	)	$	(3,217	)	$	(24,122	)	$	(12,512	)
Denominator - Weighted average shares:
Weighted average common shares outstanding for basic and diluted earnings per common share	16,525,282			16,726,610			16,431,448			16,696,201
Basic and diluted earnings per common share:
Net loss per common share	$	(0.51	)	$	(0.07	)	$	(1.10	)	$	(0.44	)
Preferred dividends per share	(0.13		)	(0.12		)	(0.37		)	(0.31		)
Net loss attributable to common shareholder per share	$	(0.64	)	$	(0.19	)	$	(1.47	)	$	(0.75	)

The following securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive (presented on a weighted average balance):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Options to purchase common stock	1,108,027	1,085,497	1,093,090	1,080,442
Restricted stock	147,722	318,390	256,129	362,829
Warrants to purchase common stock	2,600,000	2,541,286	2,600,000	2,600,000
Convertible preferred stock	10,675,224	10,216,807	10,594,150	10,552,941
Total	14,530,973	14,161,980	14,543,369	14,596,212

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Derivative

We are exposed to risks arising from rising interest rates on our variable rate debt instruments. To manage these risks, we periodically use interest rate derivatives, which currently consists of an interest rate cap. To mitigate nonperformance risk, we routinely use a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.

During 2018, we entered into an interest rate cap with a notional amount of $36.0 million and a rate cap of 2.2%. The interest rate cap had an effective date of March 21, 2018 and terminates on March 1, 2021. This instrument was not designated as a cash flow hedge. After making fair value adjustments for this instrument during the 2019 and 2018 (see Note 8), the recorded value of the interest rate cap was zero as of September 30, 2019.

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 7,447	$ 25,452
Funds held by lender and restricted cash	3,729	198
Mortgage loans, net	11,714	23,234
Real estate held for sale	7,400	7,418
Operating properties, net	65,102	33,866
Other real estate owned	33,300	33,727
Goodwill	15,357	15,357
Other intangibles, net	431	641
Other receivables	1,253	1,320
Investment in unconsolidated entities	2,612	0
Other assets	3,882	2,033
Property and equipment, net	332	393
Total assets	152,559	143,639
Liabilities
Accounts payable and accrued expenses	9,530	8,385
Accrued property taxes	979	305
Dividends payable	1,517	857
Accrued interest	537	653
Customer deposits and funds held for others	1,936	552
Notes payable, net of deferred financing fees	52,164	36,314
Total liabilities	66,663	47,066
Commitments and contingencies (Note 13)
Stockholders' Equity
Common stock, $.01 par value; 200,000,000 shares authorized; 18,929,496 and 18,596,774 shares issued at September 30, 2019 and December 31, 2018, respectively; 16,559,315 and 16,726,610 shares outstanding at September 30, 2019 and December 31, 2018, respectively	189	186
Less: Treasury stock, at cost, 2,370,181 and 1,870,164 shares at September 30, 2019 and December 31, 2018, respectively	(7,286)	(6,286)
Paid-in capital	703,813	708,523
Accumulated deficit	(710,885)	(692,876)
Total IMH Financial Corporation stockholders' equity (deficit)	(14,169)	9,547
Non-controlling interests	24,247	19,616
Total stockholders' equity	10,078	29,163
Total liabilities and stockholders’ equity	152,559	143,639
Series B Redeemable Convertible Preferred Stock
Liabilities
Preferred stock, value	54,028	45,663
Series A Redeemable Preferred Stock
Liabilities
Preferred stock, value	$ 21,790	$ 21,747

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REVENUE (Tables)

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following is a breakdown of revenue by source for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Operating property revenue
Commercial real estate rental revenue	$	1,157	$	—	$	1,474	$	—
Hotel revenues
Rooms	1,498		1,311		2,456		3,207
Food and beverage	800		314		1,339		1,440
Banquet	343		175		373		333
Spa and fitness center	166		194		378		522
Other	118		91		175		251
Total operating property revenue	4,082		2,085		6,195		5,753
Mortgage loan income, net	340		709		1,438		1,976
Management fees, investment and other income	129		32		486		323
Total revenue	$	4,551	$	2,826	$	8,119	$	8,052

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RELATED PARTY TRANSACTIONS AND COMMITMENTS

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS AND COMMITMENTS

RELATED PARTY TRANSACTIONS AND COMMITMENTS

Contractual Agreements

Interim CEO Arrangement

During the third quarter of 2019, the Company entered into a Termination of Employment Agreement, Release and Additional Compensation Agreement with Mr. Bain, the Company’s former Chairman of the Board and Chief Executive Officer (the “Bain Termination Agreement”) as well as certain other agreements. The material terms of these agreements are summarized below.

1) On July 30, 2019, the Company entered into a Consulting Services Agreement (the “ITH Consulting Services Agreement”) with ITH Partners, LLC, a Nevada limited liability company (“ITH”), pursuant to which ITH agreed to provide certain consulting services to the Company for a ninety (90) day period commencing effective as of July 25, 2019, subject to automatic thirty (30) day renewals unless earlier terminated by the parties as provided therein. Mr. Bain is the Managing Director of ITH. Pursuant to the ITH Consulting Services Agreement, Mr. Bain was appointed to fill a vacancy on the Board of Directors of the Company (created when Mr. Bain’s employment terminated and he stepped down from the Board of Directors) and served as interim Co-Chairman and Chief Executive Officer of the Company until November 1, 2019. The ITH Consulting Services Agreement imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company agreed to pay ITH a monthly consulting fee of $30,000 commencing August 1, 2019. As described in Note 16, the Company elected to terminate this agreement effective October 31, 2019;

2) Mr. Bain received a cash bonus of $0.6 million for his 2018 services (which was paid during the nine months ended September 30, 2019) and $0.35 million for his 2019 services, to be paid no later than March 31, 2020 (which has been accrued in the accompanying condensed consolidated financial statement in general and administrative expenses);

3) Mr. Bain is entitled to receive two payments of $0.25 million each by no later than January 31, 2020 and January 31, 2021, respectively;

4) Mr. Bain is entitled to receive a Legacy Asset Performance Fee (“LAPF”), as calculated in accordance with his prior employment agreement, in connection with the disposition of the Company’s interests in the assets of the New Mexico Partnerships (the “New Mexico Assets”) provided that such disposition occurs prior to December 31, 2022e;

5) On July 30, 2019, the Company and ITH also entered into a Consulting Services Agreement (the “New Mexico Asset Consulting Agreement”) pursuant to which ITH agreed to provide certain consulting services to the Company with respect to certain real property located in Sandoval County, New Mexico (the “New Mexico Asset”) for a period expiring on the earlier to occur of (a) consummation of the sale of all or substantially all of the New Mexico Asset and (b) December 31, 2022, unless such agreement is earlier terminated by the parties as provided therein. During the term of the New Mexico Asset Consulting Agreement, Mr. Bain is obligated to report to the Company’s Board of Directors and will serve as president of various corporations that serve as general partner of those entities that own the New Mexico Asset. The agreement also imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company has agreed to pay ITH a base monthly consulting fee of $5,000 commencing August 1, 2019, and an incentive bonus in the event that the Net Cash received from the sale of the New Mexico Asset exceeds certain minimum thresholds, after the payment of various reimbursements and expenses. ; and

6) All unvested equity awards and deferred compensation benefits granted to Mr. Bain were vested.

During the three months ended September 30, 2019, the Company paid Mr. Bain $83 thousand, net of certain withholdings, under the ITH Consulting Services Agreement and $15 thousand under the New Mexico Asset Consulting Agreement.

Under the terms of his employment agreement that expired on July 24, 2019, Mr. Bain is entitled to, among other things, legacy fee payments derived from the value of the disposition of certain legacy assets held by the Company as of December 31, 2010, if such assets are sold at values in excess of 110% of their carrying value as of December 31, 2010. Mr.Bain earned legacy fees of $0.1 million during the three and nine months ended September 30, 2019, and $35.0 thousand during the three and nine months ended September 30, 2018.

Juniper Capital Partners, LLC and Related Entities

In July 2014, the Company and JCP Realty entered into a consulting services agreement (the “JCP Consulting Agreement”) pursuant to which JCP Realty agreed to perform various services for the Company, including, but not limited to, (a) advising the Company with respect to identifying, structuring, and analyzing investment opportunities, and (b) assisting the Company in managing and liquidating assets, including non-performing assets. Our director, Jay Wolf, is the Managing Member of Juniper Capital Partners, the parent company of JCP Realty. The initial term of the Consulting Agreement was three years and was automatically renewable for an additional two years unless notice of termination was provided by either party. The Company and JCP entered into an amendment of the JCP Consulting Agreement dated October 17, 2017 pursuant to which: (i) the term was extended for two years that ended on July 24, 2019; (ii) the annual base consulting fee was reduced from $0.6 million to $0.5 million(subject to possible upward adjustment based on an annual review by our board of directors); and (iii) JCP is entitled to receive an origination fee of up to 1.25% on any loans or investments in real estate, preferred equity or mezzanine securities that are originated or identified by JCP (subject to a reduced fee based on the increasing size of the loan or investment). JCP is also entitled to legacy fee payments derived from the disposition of certain assets held by the Company as of December 31, 2010 to persons or opportunities arising through the efforts of JCP equal to 5.5% of the positive difference derived by subtracting (i) 110% of our December 31, 2010 valuation mark of that asset from (ii) the gross sales proceeds (on a legacy asset by asset basis without any offset for losses realized on any individual asset sales). The consulting services agreement terminated on July 24, 2019. During each of the nine months ended September 30, 2019 and 2018, we incurred base consulting fees to JCP of $0.2 million and $0.3 million, respectively. JCP earned legacy fees of none and $0.1 million during the three and nine months ended September 30, 2019 and, none and $0.2 million during the three and nine months ended September 30, 2018. The JCP Consulting Agreement was terminated effective July 14, 2019.

JIA Asset Management Agreement

On August 14, 2019, the Company entered into a non-discretionary investment advisory agreement (the “Advisory Agreement”) with Juniper Investment Advisors, LLC, a Delaware limited liability company (“JIA”), with an effective commencement date of August 1, 2019, pursuant to which JIA will manage certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real-estate owned properties. Under the terms of the Advisory Agreement, the Company will pay JIA a management fees ranging from 1.0% to 1.5% of the net asset value of certain assets under management, as well as a performance fee equal to 20% of the net profits from those assets upon disposition after the Company has received an annualized 7% return on its investment from those assets and recovery of the Company’s basis in such assets. In connection with the Advisory Agreement, certain employees of the Company have transitioned to become employees of JIA, and JIA has also sublet a portion of the Company’s office space. During the three and nine months ended September 30, 2019, we incurred base consulting fees to JIA of $52 thousand and recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33 thousand.

Jay Wolf, a director of the Company, is one of the owners of JIA and Juniper Capital Partners, LLC, a Delaware limited liability company, the sole member of Juniper NVM, LLC, a Delaware limited liability company (“JNVM”) and the manager of JCP Realty Partners, LLC, a Delaware limited liability company (“JCP Realty”). JCP Realty and JNVM hold shares of the Company’s the Series B-1 Preferred Stock.

Notes Receivable from Certain Partnerships

A subsidiary of the Company has entered into a lending facility with certain consolidated partnerships to lend up to a maximum of $5.0 million to cover the partnerships’ anticipated operating and capital expenditures. As of September 30, 2019, the total principal advanced was $5.0 million. The loans earn interest at rates ranging from the JP Morgan Chase Prime Rate plus 2.0% (7.50% at September 30, 2019) to 8.0% and have maturity dates which are the earliest to occur of: (1) the date of transfer of the partnerships real estate assets; (2) the date on which the current general partner of those partnerships resigns, withdraws or is removed as general partner; or (3) July 31, 2018. As the maturity date of such promissory notes have expired, the notes are in default and the Company is exploring its enforcement options. The promissory notes are cross collateralized and secured by real estate and other assets owned by such partnerships. These promissory notes and the related accrued interest receivable have been eliminated in consolidation.

JPMorgan Chase Funding Inc. Master Repurchase Agreement

As described in Note 9, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by Broadway Tower. The purchase of this note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding. The Chase Funding master repurchase agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020. The Company has the option to extend the maturity date to May 22, 2021 if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.

Investment in Unconsolidated Entities

As described in Note 6, during the three months ended September 30, 2019, the Company entered into an investment agreement withJuniper Bishops, LLC (a related party of Jay Wolf, a director of the Company)to participate in a $15.0 million mezzanine loan to a unrelated hotel owner and operator for the renovation of a luxury resort located in Sante Fe, New Mexico.  The mezzanine loan is secondary to a senior mortgage loan funded by an unrelated party.  The Company’s total commitment under this investment is $3.9 million, of which $2.6 million was funded as of September 30, 2019 and is reflected in investment in unconsolidated entities in the accompanying condensed consolidated balance sheet. The Company funded $1.0 million of its remaining obligation subsequent to September 30, 2019.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended						9 Months Ended		12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Cash flows from operating activities:
Net loss	$ (7,592,000)	$ (4,070,000)	$ (5,013,000)	$ (115,000)	$ (2,499,000)	$ (3,794,000)	$ (16,673,000)	$ (6,408,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation and option amortization							464,000	308,000
Gain on disposal of assets							(244,000)	(3,938,000)
Amortization of deferred financing costs							123,000	87,000
Depreciation and amortization expense							1,470,000	925,000
Accretion of mortgage income							(55,000)	(323,000)
Accretion of discount on note payable							263,000	705,000
Non-cash interest expense funded by loan draw							1,122,000	811,000
Non-cash provision for (recovery of) credit losses							2,598,000	0
Unrealized loss on derivatives	39,000			0			330,000	0
Changes in operating assets and liabilities, net of business combination:
Accrued interest receivable							318,000	12,000
Other receivables							(179,000)	(360,000)
Other assets							(2,179,000)	78,000
Accrued property taxes							674,000	111,000
Accounts payable and accrued expenses							(1,454,000)	(2,901,000)
Customer deposits and funds held for others							1,384,000	137,000
Accrued interest							(626,000)	344,000
Total adjustments, net							4,009,000	(4,004,000)
Net cash used in operating activities							(12,664,000)	(10,412,000)
Cash flows from investing activities:
Proceeds from sale of real estate owned and operating properties and other assets							895,000	8,709,000
Purchases of property and equipment							(23,000)	(23,000)
Mortgage loan payoff							3,000,000	0
Mortgage loan investment and fundings							(1,966,000)	(3,000,000)
Investment in unconsolidated entities							(2,612,000)	0
Acquisition of cash and restricted cash through foreclosure							2,900,000	0
Investment in real estate owned and other operating properties							(13,359,000)	(7,208,000)
Acquisition of non-controlling interests							(2,250,000)	0
Net cash used in investing activities							(13,415,000)	(1,522,000)
Cash flows from financing activities:
Proceeds from notes payable							13,662,000	0
Debt issuance costs paid							(144,000)	(405,000)
Repayments of notes payable							(10,176,000)	(14,000)
Dividends paid							(3,202,000)	(1,926,000)
Purchase of treasury stock							(1,000,000)	0
Proceeds from Issuance of Preferred Equity							6,000,000	30,000,000
Purchase of Interest rate cap							0	(548,000)
Contribution of Hotel Fund capital costs							(48,000)	(87,000)
Contributions from Hotel Fund investors							7,518,000	9,815,000
Distributions to Hotel Fund investors	(400,000)			(100,000)			(1,005,000)	(205,000)
Net cash provided by financing activities							11,605,000	36,630,000
Net increase (decrease) in cash, cash equivalents, and restricted cash							(14,474,000)	24,696,000
Cash, cash equivalents, and restricted cash, beginning of period			$ 25,650,000			$ 11,932,000	25,650,000	11,932,000	$ 11,932,000
Cash, cash equivalents, and restricted cash, end of period	11,176,000			36,628,000			11,176,000	36,628,000	$ 25,650,000
Supplemental cash flow information:
Cash paid for interest							1,212,000	308,000
Cash paid for taxes							90,000	0
Non-cash investing and financing transactions:
Foreclosure on investment in mortgage loan							7,625,000	0
Acquisition of operating property building and operations through foreclosure							7,379,000	0
Assumption of first mortgage, accrued interest and operating liabilities through foreclosure							13,303,000	0
Loan from JPM Chase Funding, Inc., (a related party) for purchase first mortgage on operating property							11,000,000	0
Lease liability arising from the recognition of right-of-use asset	$ 1,431,000			0			1,431,000	0
Non-cash interest costs capitalized to operating property							1,000,000	0
Capital expenditures in accounts payable and accrued expenses							1,790,000	929,000
Decrease in non-controlling interest through profit participation				$ (1,939,000)			$ 0	$ (1,939,000)

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STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table presents a reconciliation of net loss to net loss attributable to common shareholders used in the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands, except for per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Earnings allocable to common shares:
Numerator - Loss Attributable to Common Shareholders:
Net loss	$	(7,592	)	$	(115	)	$	(16,673	)	$	(6,408	)
Net (income) loss attributable to non-controlling interest	(893		)	(1,105		)	(1,334		)	(990		)
Preferred dividends	(2,108		)	(1,997		)	(6,115		)	(5,114		)
Net loss attributable to common shareholders	$	(10,593	)	$	(3,217	)	$	(24,122	)	$	(12,512	)
Denominator - Weighted average shares:
Weighted average common shares outstanding for basic and diluted earnings per common share	16,525,282			16,726,610			16,431,448			16,696,201
Basic and diluted earnings per common share:
Net loss per common share	$	(0.51	)	$	(0.07	)	$	(1.10	)	$	(0.44	)
Preferred dividends per share	(0.13		)	(0.12		)	(0.37		)	(0.31		)
Net loss attributable to common shareholder per share	$	(0.64	)	$	(0.19	)	$	(1.47	)	$	(0.75	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive (presented on a weighted average balance):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Options to purchase common stock	1,108,027	1,085,497	1,093,090	1,080,442
Restricted stock	147,722	318,390	256,129	362,829
Warrants to purchase common stock	2,600,000	2,541,286	2,600,000	2,600,000
Convertible preferred stock	10,675,224	10,216,807	10,594,150	10,552,941
Total	14,530,973	14,161,980	14,543,369	14,596,212

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INTANGIBLE ASSETS AND GOODWILL (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Intangible assets and goodwill, gross	$ 16,347		$ 16,347		$ 16,347
Goodwill	15,357		15,357		15,357
Amortization expense	100	$ 100	210	$ 200
Trade name and other
Finite-Lived Intangible Assets [Line Items]
Amortizing intangible assets, gross	90		$ 90		90
Amortizing intangible assets, weighted-average useful life			7 years
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Amortizing intangible assets, gross	$ 800		$ 800		$ 800
Amortizing intangible assets, weighted-average useful life			3 years

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FAIR VALUE (Details) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 14, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unrealized loss on derivatives		$ 39,000	$ 0	$ 330,000	$ 0
Provision for (recovery of) credit losses, net		2,598,000	0	1,463,000	(175,000)
Recovery of credit losses		(1,100,000)	$ (200,000)	(1,100,000)	$ (200,000)
Designated as Hedging Instrument | Cash Flow Hedging | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of derivative		0		0
Mortgage Receivable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage loans, net				11,700,000		$ 23,200,000
Allowance for loan and lease losses, real estate		$ 15,300,000		$ 15,300,000		$ 13,100,000
Percentage of valuation allowance on loans receivable		57.70%		57.70%		37.10%
Subsequent Event
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Provision for (recovery of) credit losses, net	$ 2,600,000
Subsequent Event | Mezzanine Loan | Mortgage Receivable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage loans, net	$ 12,300,000

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SEGMENT INFORMATION (Details) - USD ($)	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Balance Sheet Items
Total Assets	$ 152,559,000						$ 152,559,000		$ 143,639,000
Expenditures for additions to long-lived assets							13,382,000	$ 7,231,000
Revenues [Abstract]
Operating property revenue	4,082,000			$ 2,085,000			6,195,000	5,753,000
Mortgage loan income, net	340,000			709,000			1,438,000	1,976,000
Management fees, investment and other income	129,000			32,000			486,000	323,000
Total revenue	4,551,000			2,826,000			8,119,000	8,052,000
Expenses [Abstract]
Total operating expenses	9,729,000			6,484,000			23,243,000	18,573,000
Other (income) expense
Gain on disposal of assets, net	(223,000)			(3,543,000)			(244,000)	(3,938,000)
Provision for (recovery of) credit losses, net	2,598,000			0			1,463,000	(175,000)
Unrealized loss on derivatives	39,000			0			330,000	0
Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other	2,414,000			(3,543,000)			1,549,000	(4,113,000)
Total costs and expense, net	12,143,000			2,941,000			24,792,000	14,460,000
Loss before provision for income tax	(7,592,000)			(115,000)			(16,673,000)	(6,408,000)
Income tax provision	0			0			0	0
Net Loss	(7,592,000)	$ (4,070,000)	$ (5,013,000)	(115,000)	$ (2,499,000)	$ (3,794,000)	(16,673,000)	(6,408,000)
Mortgage and REO Legacy Portfolio and Other Operations
Balance Sheet Items
Total Assets	80,986,000						80,986,000		67,658,000
Expenditures for additions to long-lived assets							1,071,000	2,321,000
Revenues [Abstract]
Operating property revenue	1,157,000			0			1,474,000	0
Mortgage loan income, net	340,000			709,000			1,438,000	1,976,000
Management fees, investment and other income	6,000			0			92,000	2,000
Total revenue	1,503,000			709,000			3,004,000	1,978,000
Expenses [Abstract]
Total operating expenses	1,863,000			843,000			3,538,000	2,256,000
Other (income) expense
Gain on disposal of assets, net	(223,000)			(3,543,000)			(244,000)	(3,938,000)
Provision for (recovery of) credit losses, net	2,598,000						1,463,000	(175,000)
Unrealized loss on derivatives	0						0
Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other	2,375,000			(3,543,000)			1,219,000	(4,113,000)
Total costs and expense, net	4,238,000			(2,700,000)			4,757,000	(1,857,000)
Loss before provision for income tax	(2,735,000)			3,409,000			(1,753,000)	3,835,000
Income tax provision	0			0			0	0
Net Loss	(2,735,000)			3,409,000			(1,753,000)	3,835,000
Hospitality and Entertainment Operations
Balance Sheet Items
Total Assets	66,931,000						66,931,000		52,753,000
Expenditures for additions to long-lived assets							12,288,000	4,887,000
Revenues [Abstract]
Operating property revenue	2,925,000			2,085,000			4,721,000	5,753,000
Mortgage loan income, net	0			0			0	0
Management fees, investment and other income	0			0			0	240,000
Total revenue	2,925,000			2,085,000			4,721,000	5,993,000
Expenses [Abstract]
Total operating expenses	5,136,000			3,228,000			12,453,000	9,440,000
Other (income) expense
Gain on disposal of assets, net	0			0			0	0
Provision for (recovery of) credit losses, net	0						0	0
Unrealized loss on derivatives	39,000						330,000
Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other	39,000			0			330,000	0
Total costs and expense, net	5,175,000			3,228,000			12,783,000	9,440,000
Loss before provision for income tax	(2,250,000)			(1,143,000)			(8,062,000)	(3,447,000)
Income tax provision	0			0			0	0
Net Loss	(2,250,000)			(1,143,000)			(8,062,000)	(3,447,000)
Corporate and Other
Balance Sheet Items
Total Assets	4,642,000						4,642,000		$ 23,228,000
Expenditures for additions to long-lived assets							23,000	23,000
Revenues [Abstract]
Operating property revenue	0			0			0	0
Mortgage loan income, net	0			0			0	0
Management fees, investment and other income	123,000			32,000			394,000	81,000
Total revenue	123,000			32,000			394,000	81,000
Expenses [Abstract]
Total operating expenses	2,730,000			2,413,000			7,252,000	6,877,000
Other (income) expense
Gain on disposal of assets, net	0			0			0	0
Provision for (recovery of) credit losses, net	0						0	0
Unrealized loss on derivatives	0						0
Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other	0			0			0	0
Total costs and expense, net	2,730,000			2,413,000			7,252,000	6,877,000
Loss before provision for income tax	(2,607,000)			(2,381,000)			(6,858,000)	(6,796,000)
Income tax provision	0			0			0	0
Net Loss	$ (2,607,000)			$ (2,381,000)			$ (6,858,000)	$ (6,796,000)

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SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

Condensed consolidated financial information for our reportable operating segments as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 is summarized as follows (in thousands):

	September 30,		December 31,
Balance Sheet Items	2019		2018
Total Assets
Mortgage and REO Legacy portfolio and other operations	$	80,986	$	67,658
Hospitality and entertainment operations	66,931		52,753
Corporate and other	4,642		23,228
Consolidated total	$	152,559	$	143,639
	Nine Months Ended September 30,
Cash Flow Items	2019		2018
Expenditures for additions to long-lived assets
Mortgage and REO Legacy portfolio and other operations	$	1,071	$	2,321
Hospitality and entertainment operations	12,288		4,887
Corporate and other	23		23
Consolidated total	$	13,382	$	7,231

	Three Months Ended September 30, 2019
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	1,157		$	2,925		$	—		$	4,082
Mortgage loan income	340			—			—			340
Management fees, investment and other income	6			—			123			129
Total revenue	1,503			2,925			123			4,551
Total operating expenses	1,863			5,136			2,730			9,729
Other (income) expense
Gain on disposal of assets	(223		)	—			—			(223		)
Provision for (recovery of) credit losses, net	2,598			—			—			2,598
Unrealized loss on derivatives	—			39			—			39
Total other (income) expense	2,375			39			—			2,414
Total costs and expense, net	4,238			5,175			2,730			12,143
Loss before income taxes	(2,735		)	(2,250		)	(2,607		)	(7,592		)
Provision for income taxes	—			—			—			—
Net loss	$	(2,735	)	$	(2,250	)	$	(2,607	)	$	(7,592	)

	Three Months Ended September 30, 2018
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	—		$	2,085		$	—		$	2,085
Mortgage loan income	709			—			—			709
Management fees, investment and other income	—			—			32			32
Total revenue	709			2,085			32			2,826
Total operating expenses	843			3,228			2,413			6,484
Other (income) expense
Gain on disposal of assets, net	(3,543		)	—			—			(3,543		)
Total other income	(3,543		)	—			—			(3,543		)
Total costs and expense, net	(2,700		)	3,228			2,413			2,941
Income (loss) before income taxes	3,409			(1,143		)	(2,381		)	(115		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	3,409		$	(1,143	)	$	(2,381	)	$	(115	)

	Nine Months Ended September 30, 2019
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	1,474		$	4,721		$	—		$	6,195
Mortgage loan income	1,438			—			—			1,438
Management fees, investment and other income	92			—			394			486
Total revenues	3,004			4,721			394			8,119
Total operating expenses	3,538			12,453			7,252			23,243
Other (income) expense
Gain on Disposal of Assets, Net	(244		)	—			—			(244		)
Provision for (recovery of) credit losses, net	1,463			—			—			1,463
Unrealized loss on derivatives	—			330			—			330
Total other (income) expense	1,219			330			—			1,549
Total costs and expense, net	4,757			12,783			7,252			24,792
Loss before income taxes	(1,753		)	(8,062		)	(6,858		)	(16,673		)
Provision for income taxes	—			—			—			—
Net loss	$	(1,753	)	$	(8,062	)	$	(6,858	)	$	(16,673	)

	Nine Months Ended September 30, 2018
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	—		$	5,753		$	—		$	5,753
Mortgage loan income	1,976			—			—			1,976
Management fees, investment and other income	2			240			81			323
Total revenue	1,978			5,993			81			8,052
Total operating expenses	2,256			9,440			6,877			18,573
Other (income) expense
Gain on disposal of assets, net	(3,938		)	—			—			(3,938		)
Provision for (recovery of) credit losses, net	(175		)	—			—			(175		)
Total other income	(4,113		)	—			—			(4,113		)
Total costs and expense, net	(1,857		)	9,440			6,877			14,460
Income (loss) before income taxes	3,835			(3,447		)	(6,796		)	(6,408		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	3,835		$	(3,447	)	$	(6,796	)	$	(6,408	)

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Schedule of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and funds held by lender and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30,		December 31,
	2019		2018
Cash and cash equivalents	$	7,447	$	25,452
Funds held by lender and restricted cash	3,729		198
Total cash, cash equivalents, and restricted cash	$	11,176	$	25,650

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized	200,000,000	200,000,000
Common Stock, shares issued	18,929,496	18,596,774
Common Stock, shares outstanding	16,559,315	16,726,610
Treasury Stock, shares at cost	2,370,181	1,870,164
Series B Redeemable Convertible Preferred Stock
Preferred Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, shares authorized	100,000,000	100,000,000
Preferred Stock, shares Issued (in shares)	12,427,941	10,552,941
Preferred Stock, shares outstanding	12,427,941	10,552,941
Preferred Stock, liquidation preference	$ 59,870	$ 51,170
Series A Redeemable Preferred Stock
Preferred Stock, shares Issued (in shares)	22,000	22,000
Preferred Stock, shares outstanding	22,000	22,000
Preferred Stock, liquidation preference	$ 22,000	$ 22,000

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BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY

BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY

Our Company

IMH Financial Corporation (together with its subsidiaries, the “Company”) is a real estate investment and finance company based in the southwestern United States engaged in various and diverse facets of the real estate lending and investment process, including origination, acquisition, underwriting, servicing, enforcement, development, marketing, and disposition. The Company’s focus is to invest in, manage and dispose of commercial real estate mortgage investments, hospitality assets, and other real estate assets, and to perform all functions reasonably related thereto, including developing, managing and either holding for investment or disposing of real property acquired through acquisition, foreclosure or other means.

Our History and Structure

We were formed from the conversion of our predecessor entity, IMH Secured Loan Fund, LLC (the “Fund”), into a Delaware corporation. The Fund, which was organized in May 2003, commenced operations in August 2003, focusing on investments in senior short-term whole commercial real estate mortgage loans collateralized by first mortgages on real property. The Fund was externally managed by Investors Mortgage Holdings, Inc. (the “Manager”), which was incorporated in Arizona in June 1997 and is licensed as a mortgage banker by the State of Arizona. Through a series of private placements to accredited investors, the Fund raised $875 million of equity capital from May 2003 through December 2008. Due to the cumulative number of investors in the Fund, the Fund registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on April 30, 2007 and began filing periodic reports with the Securities and Exchange Commission (“SEC”). On June 18, 2010, the Fund became internally-managed through the acquisition of the Manager, and converted into a Delaware corporation in a series of transactions that we refer to as the “Conversion Transactions”. Effective August 1, 2019, the Company entered into a Non-Discretionary Investment Advisory Agreement (“Advisory Agreement”) with Juniper Investment Advisors, LLC (“Juniper Advisors”) pursuant to which Juniper Advisors will manage certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real estate owned properties.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements include the accounts of IMH Financial Corporation and the following wholly-owned operating subsidiaries: 11333, Inc. (formerly known as Investors Mortgage Holdings, Inc.), an Arizona corporation; Investors Mortgage Holdings California, Inc., a California corporation; IMH Holdings, LLC, a Delaware limited liability company (“Holdings”); and various other wholly owned subsidiaries established in connection with the acquisition of real estate either through foreclosure or purchase and/or for borrowing purposes and majority owned or controlled real estate entities and interests in variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. IMH Management Services, LLC, an Arizona limited liability company, provides us and our affiliates with human resources and administrative services, including the supply of employees. Other entities in which we have invested and have the ability to exercise significant influence over operating and financial policies of the investee, but upon over which we do not possess control, are accounted for by the equity method of accounting within the financial statements and they are therefore not consolidated.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Liquidity

We require liquidity and capital resources for our general working capital needs, including maintenance, development costs and capital expenditures for our operating properties and non-operating REO assets, professional fees, general and administrative operating costs, loan enforcement costs, financing costs, debt service payments, and dividends to our preferred shareholders, as well as to acquire our target assets.

As of September 30, 2019, our accumulated deficit aggregated $710.9 million primarily as a result of previous provisions for credit losses recorded relating to the decrease in the fair value of the collateral securing our legacy loan portfolio, impairment charges relating to the value of real estate owned (“REO”) assets acquired primarily through foreclosure, as well as on-going net operating losses resulting primarily from the lack of income-producing assets.

The Company has taken a number of steps to maintain an adequate level of on-going liquidity over the years. Our liquidity plan has included obtaining outside financing, selling mortgage loans, and selling the majority of our legacy real estate assets.

As further described in Note 11, during the three months ended September 30, 2019, JPMorgan Chase Funding Inc. (“Chase Funding”) purchased 1,875,000 shares of our Series B-4 Cumulative Convertible Preferred Stock (the “Series B-4 Preferred Stock”), at a price of $3.20 per share, for a total purchase price of $6.0 million. Dividends on the Series B-4 Preferred Stock are cumulative and accrue from the issue date, compounding quarterly at the rate of 5.65% of the issue price per year, and are payable quarterly in arrears. Holders of the Series B-4 Preferred Stock are entitled to receive a liquidation preference of 145% of the sum of the original price per share of the Series B-4 Preferred Stock plus all accrued and unpaid dividends. The Series B-4 Preferred Stock contains redemption features similar in all material respects to the Company’s other outstanding shares of Series B Preferred Stock.

In the second quarter of 2019, we conducted a UCC foreclosure on the collateral securing a $7.6 million mezzanine note receivable that was in default. That collateral was 100% of the membership interests in an LLC that owns a commercial real estate building and operations in St. Louis, Missouri. In connection with this foreclosure, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by this property. The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding and the balance using Company funds. The master repurchase agreement has an initial maturity date of May 22, 2020. The Company has the option to extend the maturity date for one year if, among other conditions, certain debt yield and Broadway Tower occupancy rates are achieved.

In addition, in connection with the Company’s acquisition and renovation of the MacArthur Place Hotel in Sonoma, California (“MacArthur Place”), the Company entered into a building loan agreement and related agreements in October 2017 with MidFirst Bank in the amount of $32.3 million (the “MacArthur Loan”). As described in Note 9, the MacArthur Loan was modified during the first quarter of 2019 to increase the loan facility to $37.0 million and to establish certain additional reserve accounts in the amount of $2.0 million. The MacArthur Loan has an initial maturity of October 1, 2020 with twoone-year extension options available if certain criteria is met.

The modified MacArthur Loan required the Company to fund minimum equity of $27.7 million, all of which has been funded as of September 30, 2019. The Company has provided a loan repayment guaranty equal to 50% of the original principal amount of the MacArthur Loan along with a guaranty of interest and operating deficits, as well as other customary non-recourse carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum Tangible Net Worth, as defined, of $50.0 million and minimum liquidity of $5.0 million throughout the term of the MacArthur Loan. The Company was in compliance with such financial covenants as of September 30, 2019. In addition, the MacArthur Loan requires MacArthur Place to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

Commencing in November 2017 the Company sponsored an offering under SEC Regulation D of up to $25.0 million of preferred limited liability company interests (the “Preferred Interests”) of the L’Auberge de Sonoma Resort Fund, LLC (the “Hotel Fund”). The net proceeds of this offering were used primarily to (i) reimburse the Company’s for its initial $17.8 million common investment in the Hotel Fund and (ii) fund certain renovations and operating losses at MacArthur Place. As of September 30, 2019, the Hotel Fund had sold all of the Preferred Interests in the aggregate amount of $22.5 million. The Company has guaranteed and funded the payment of monthly 7% distributions to Preferred Interests since the commencement of the Hotel Fund which has totaled $1.6 million through September 30, 2019.

As of September 30, 2019, we had cash and cash equivalents of $7.4 million, REO assets held for sale with a carrying value of $7.4 million and other REO assets with a carrying value of $33.3 million that we seek to dispose of within the next 12 months. We continue to evaluate potential disposition strategies for our remaining REO assets and to seek additional sources of debt and equity for investment and working capital purposes. During the third quarter of 2019, a court-ordered stay that was previously issued, and which prevented the sale of certain assets, was lifted, thereby allowing us to market such assets for sale.

At any time after July 24, 2020, each holder of our Series B-1 and B-2 Preferred Stock may require the Company to redeem, out of legally available funds, the shares held by such holder at a price (the “Redemption Price”) equal to the greater of (i) 150% of the sum of the original price per share plus all accrued and unpaid dividends or (ii) the sum of the tangible book value of the Company per share of voting Common Stock and all accrued and unpaid dividends as of the date of redemption. A cash payment in the aggregate amount of $2.6 million is due and payable to the holders of the Series B-1 and B-2 Preferred Stock on July 24, 2020 whether or not a redemption is requested. The current holders of our Series B Preferred Stock are collectively referred to herein as the “Series B Investors”.

We expect our primary sources of liquidity over the next twelve months to consist of proceeds from the disposition of our existing REO assets held for sale and loan assets, proceeds from borrowings and equity issuances, current cash, mezzanine and mortgage loan interest income, and revenues from ownership or management of MacArthur Place and Broadway Tower. If we are able to resolve these matters favorably, we believe that our cash and cash equivalents coupled with our operating and investing revenues, as well as proceeds that we anticipate receiving from the disposition of our real estate assets and debt and equity financing efforts will be sufficient to allow us to fund our operations for a period of one year from the date these condensed consolidated financial statements are issued.

We have used third-party financing, proceeds from the sale of certain REO assets, and the payment of principal and interest on mortgage and related investments to satisfy for working capital purposes requirements through September 30, 2019. Subsequent to September 30, 2019, in order to meet impending liquidity requirements, we sold one of our mezzanine loan investments with a principal balance of $12.3 million at a discount incurring a loss of $2.6 million. We are also continuing to discuss the potential extension or restructuring of our Series B Preferred Stock with the holders of those shares and our outstanding debt obligations. There can be no assurance that these efforts will be successful or that we will sell our remaining REO assets in a timely manner or in obtaining additional or replacement financing, if needed, to sufficiently fund our future operations, repay existing debt, or to implement our investment strategy. Our failure to generate sustainable earning assets and to successfully liquidate a sufficient number of our REO assets may have a material adverse effect on our business, results of operations and financial position. In the absence of favorably resolving the matters described above, the collective nature of these uncertainties create substantial doubt about our ability to continue as a going concern for a period beyond one year from the date of issuance of these condensed consolidated financial statements.

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LEASES

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

LEASES

LEASES

Lessor

On May 29, 2019, we foreclosed on all of the membership interests of Hertz Broadway Tower, LLC, (“Hertz Broadway”), the owner of Broadway Tower.

As a result, we acquired Broadway Tower its related assets and business operations and assumed related liabilities. The Company assumed 51 commercial office leases for the building’s floor space and parking spaces. (See Note 4 for further discussion of this transaction).

Prior to this foreclosure transaction, Hertz Broadway accounted for the leases under ASC 840 - Leases. Thereafter, the Company adopted the requirements of ASU 2016-02 with respect to such leases. The lessor accounting model under ASU 2016-02 is similar to existing guidance, however, it limits the capitalization of initial direct leasing costs, such as internally generated costs. The adoption of ASU 2016-02 for this lease did not have an impact in our consolidated financial statements. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we were not required to reassess whether the agreements contain a lease. Accordingly, we carried forward the previous classification of the leases as operating and did not have to reassess previously recorded initial direct costs.

These lease agreements have been recorded in revenue during the three and nine months ended September 30, 2019. The Company’s operating leases have non-cancellable lease terms of 0.9 years to 10.1 years as of September 30, 2019. Certain leases with tenants include options to extend or terminate the lease agreements. The Company believes the residual value risk is not a primary risk because of the long-lived nature of the asset.

The following table presents minimum lease revenues and variable lease revenue for the three and nine months ended September 30, 2019 (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease revenue
Fixed rent - Minimum lease revenue	$	1,091	$	—	$	1,387	$	—
Variable lease revenue	66		—		87		—
Total lease revenue	$	1,157	$	—	$	1,474	$	—

Variable rent includes costs reimbursed related to property operating expenses, common area maintenance, insurance and property taxes.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands).

Years ending	Amount
Remainder of 2019	$	870
2020	3,744
2021	3,796
2022	3,416
2023	2,306
Thereafter	3,639
Total	$	17,771

Lessee

We have operating leases for our corporate headquarters office space and certain office equipment. Our leases have remaining lease terms of between one to four years. The lease for our corporate office includes an option to extend the lease term for up to five years. This option is not included in the calculation of the ROU assets and lease liabilities because the Company is not reasonably certain that it will exercise the option. Lease expense was $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively, which is included in general and administrative expenses in the accompanying condensed consolidated statement of operations. As disclosed in Note 15, Juniper Investment Advisors, LLC (“JIA”) has also sublet a portion of the Company’s office space. During the three and nine months ended September 30, 2019, we recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33 thousand.

Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and were $0.1 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.1 million and $0.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Supplemental cash flow information related to leases for the nine months ended September 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	321
Non-cash investing and financing activities:
Right-of-use assets and lease liabilities recorded upon adoption of ASC 842
Right-of-use assets	$	1,574
Lease liabilities	$	1,693

Supplemental balance sheet information related to leases as of September 30, 2019 was as follows (thousands, except lease term and discount rate):

Operating leases
Operating lease right-of-use assets in other assets	$	1,330
Operating lease liabilities in accounts payable and other accrued expenses	$	1,431
Weighted average remaining lease term	2.8 years
Operating leases - Weighted average discount rate	7.1%

The following represents future payments on operating leases as of September 30, 2019 (in thousands):

Years ending	Amount
Remainder of 2019	$	214
2020	574
2021	575
2022	237
Total lease payments	1,600
Less imputed interest	(169		)
Total	$	1,431

As of December 31, 2018, future minimum lease payments required under these various lease agreements are as follows (in thousands):

Years ending	Amount
2019	$	305
2020	307
2021	307
2022	233
Total	$	1,152

LEASES

LEASES

Lessor

On May 29, 2019, we foreclosed on all of the membership interests of Hertz Broadway Tower, LLC, (“Hertz Broadway”), the owner of Broadway Tower.

As a result, we acquired Broadway Tower its related assets and business operations and assumed related liabilities. The Company assumed 51 commercial office leases for the building’s floor space and parking spaces. (See Note 4 for further discussion of this transaction).

Prior to this foreclosure transaction, Hertz Broadway accounted for the leases under ASC 840 - Leases. Thereafter, the Company adopted the requirements of ASU 2016-02 with respect to such leases. The lessor accounting model under ASU 2016-02 is similar to existing guidance, however, it limits the capitalization of initial direct leasing costs, such as internally generated costs. The adoption of ASU 2016-02 for this lease did not have an impact in our consolidated financial statements. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we were not required to reassess whether the agreements contain a lease. Accordingly, we carried forward the previous classification of the leases as operating and did not have to reassess previously recorded initial direct costs.

These lease agreements have been recorded in revenue during the three and nine months ended September 30, 2019. The Company’s operating leases have non-cancellable lease terms of 0.9 years to 10.1 years as of September 30, 2019. Certain leases with tenants include options to extend or terminate the lease agreements. The Company believes the residual value risk is not a primary risk because of the long-lived nature of the asset.

The following table presents minimum lease revenues and variable lease revenue for the three and nine months ended September 30, 2019 (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease revenue
Fixed rent - Minimum lease revenue	$	1,091	$	—	$	1,387	$	—
Variable lease revenue	66		—		87		—
Total lease revenue	$	1,157	$	—	$	1,474	$	—

Variable rent includes costs reimbursed related to property operating expenses, common area maintenance, insurance and property taxes.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands).

Years ending	Amount
Remainder of 2019	$	870
2020	3,744
2021	3,796
2022	3,416
2023	2,306
Thereafter	3,639
Total	$	17,771

Lessee

We have operating leases for our corporate headquarters office space and certain office equipment. Our leases have remaining lease terms of between one to four years. The lease for our corporate office includes an option to extend the lease term for up to five years. This option is not included in the calculation of the ROU assets and lease liabilities because the Company is not reasonably certain that it will exercise the option. Lease expense was $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively, which is included in general and administrative expenses in the accompanying condensed consolidated statement of operations. As disclosed in Note 15, Juniper Investment Advisors, LLC (“JIA”) has also sublet a portion of the Company’s office space. During the three and nine months ended September 30, 2019, we recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33 thousand.

Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and were $0.1 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.1 million and $0.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Supplemental cash flow information related to leases for the nine months ended September 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	321
Non-cash investing and financing activities:
Right-of-use assets and lease liabilities recorded upon adoption of ASC 842
Right-of-use assets	$	1,574
Lease liabilities	$	1,693

Supplemental balance sheet information related to leases as of September 30, 2019 was as follows (thousands, except lease term and discount rate):

Operating leases
Operating lease right-of-use assets in other assets	$	1,330
Operating lease liabilities in accounts payable and other accrued expenses	$	1,431
Weighted average remaining lease term	2.8 years
Operating leases - Weighted average discount rate	7.1%

The following represents future payments on operating leases as of September 30, 2019 (in thousands):

Years ending	Amount
Remainder of 2019	$	214
2020	574
2021	575
2022	237
Total lease payments	1,600
Less imputed interest	(169		)
Total	$	1,431

As of December 31, 2018, future minimum lease payments required under these various lease agreements are as follows (in thousands):

Years ending	Amount
2019	$	305
2020	307
2021	307
2022	233
Total	$	1,152

XML

NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS (Details 1)	9 Months Ended	12 Months Ended
	Sep. 30, 2019 USD ($) renewal_option	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Debt	$ 52,164,000
Secured Debt | $37.0 Million Note Payable
Debt Instrument [Line Items]
Debt amount	$ 37,000,000.0
Stated interest rate	5.54%	6.04%
Maturity term	1 year
Number of extensions available for loans acquired | renewal_option	2
Secured Debt | 5.9 Million Note Payable
Debt Instrument [Line Items]
Debt amount	$ 5,900,000
Stated interest rate	8.00%	8.25%
Unsecured Debt | Legal Settlement
Debt Instrument [Line Items]
Debt amount		$ 10,200,000
LIBOR | $37.0 Million Note Payable
Debt Instrument [Line Items]
Annual interest rate	2.00%	2.50%
LIBOR | Secured Debt | $11.0 Million Note Payable
Debt Instrument [Line Items]
Variable rate	3.81%
Effective rate (percentage)	5.81%
Prime Rate | Secured Debt | 5.9 Million Note Payable
Debt Instrument [Line Items]
Variable rate	3.00%
Minimum | Special Assessment Bonds
Debt Instrument [Line Items]
Stated interest rate	6.00%
Minimum | LIBOR | Secured Debt | $37.0 Million Note Payable
Debt Instrument [Line Items]
Variable rate	3.54%
Maximum | Special Assessment Bonds
Debt Instrument [Line Items]
Stated interest rate	7.50%
Maximum | LIBOR | Secured Debt | $37.0 Million Note Payable
Debt Instrument [Line Items]
Variable rate	3.75%
Continuing Operations
Debt Instrument [Line Items]
Debt	$ 52,470,000	$ 36,598,000
Less: deferred financing costs of notes payable	(306,000)	(284,000)
Total notes payable	52,164,000	36,314,000
Continuing Operations | Special Assessment Bonds
Debt Instrument [Line Items]
Special assessment bond	75,000	90,000
Continuing Operations | Secured Debt | $37.0 Million Note Payable
Debt Instrument [Line Items]
Debt	35,455,000	20,669,000
Continuing Operations | Secured Debt | $11.0 Million Note Payable
Debt Instrument [Line Items]
Debt	11,000,000	0
Continuing Operations | Secured Debt | 5.9 Million Note Payable
Debt Instrument [Line Items]
Debt	5,940,000	5,940,000
Continuing Operations | Unsecured Debt | Legal Settlement
Debt Instrument [Line Items]
Debt	0	$ 9,899,000
JPMorgan Chase Funding Inc. | Secured Debt
Debt Instrument [Line Items]
Debt	13,200,000
Debt amount	11,000,000
JPMorgan Chase Funding Inc. | Secured Debt | $11.0 Million Note Payable
Debt Instrument [Line Items]
Debt	$ 11,000,000
Maturity term	1 year
Mortgage loans in process of foreclosure, notes purchased	$ 13,200,000
JPMorgan Chase Funding Inc. | LIBOR | Secured Debt
Debt Instrument [Line Items]
Variable rate	3.81%

XML

STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE (Details Textual) - USD ($) $ / shares in Units, $ in Thousands						1 Months Ended		3 Months Ended		9 Months Ended
	Sep. 25, 2019	Jul. 23, 2019	Jan. 11, 2019	May 31, 2018	Feb. 09, 2018	Nov. 14, 2019	Jul. 31, 2014	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common Stock, shares outstanding								16,559,315		16,559,315		16,726,610
Proceeds from issuance of preferred equity										$ 6,000	$ 30,000
Treasury stock repurchase (in shares)			500,000
Treasury stock acquired, average cost per share (in dollars per share)			$ 2.00
Stock-based compensation (in shares)										332,722
Options granted (in shares)										117,449
Shares outstanding (in shares)								1,152,361		1,152,361
Shares vested (in shares)										1,046,196
Warrant or right, outstanding (in shares)								2,600,000		2,600,000
Stock-based compensation expense								$ 300	$ 200	$ 600	$ 400
Stock Incentive Plan 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation								$ 300		$ 300
Period of recognition										1 year 3 months 22 days
JPMorgan Chase Funding Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrant, authorized issuance (in shares)					600,000
Warrant, period					2 years
Warrant, exercise price per share (in USD per share)					$ 2.25
Common Class D
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common Stock, shares outstanding								0		0		0
Series B-1 and B-2 Cumulative Convertible Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional issue of preferred stock (in shares)							8,200,000
Deemed dividend on redeemable convertible preferred stock							$ 26,400
Series B-1 and B-2 Cumulative Convertible Preferred Stock | JPMorgan Chase Funding Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from issuance of preferred equity		$ 2,600								$ 2,600
Warrant, period		1 year
Series B Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Preferred stock redemption price										150.00%
Series B Preferred Stock | JPMorgan Chase Funding Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional issue of preferred stock (in shares)					2,352,941
Preferred stock, purchase price, value					$ 8,000
Series B-4 Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional issue of preferred stock (in shares)								1,875,000		1,875,000
Preferred stock, accrued and unpaid dividends, percentage	5.65%							5.65%
Preferred stock redemption price	145.00%							145.00%		145.00%
Series B-4 Preferred Stock | JPMorgan Chase Funding Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional issue of preferred stock (in shares)	1,875,000							1,875,000		1,875,000
Preferred stock per share (in dollars per share)	$ 3.20							$ 3.20		$ 3.20
Proceeds from issuance of preferred equity	$ 6,000							$ 6,000
Series A Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Preferred distribution rate										7.50%
Series A Preferred Stock | JPMorgan Chase Funding Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional issue of preferred stock (in shares)				22,000
Preferred stock, purchase price, value				$ 22,000
Estimated fair value per share (in USD per share)				$ 1,000
Common Class B
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Treasury stock repurchase (in shares)			477,170
Class C Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Treasury stock repurchase (in shares)			22,830
Restricted stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested restricted stock grants outstanding (in shares)								152,228		152,228
Subsequent Event | Restricted stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Equity instruments other than options granted (in shares)						74,405

XML

INTANGIBLE ASSETS AND GOODWILL (Details 1) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Goodwill [Roll Forward]
Goodwill, at beginning			$ 15,357
Goodwill, at end	$ 15,357		15,357
Intangible Assets [Roll Forward]
Other intangibles, at beginning			641
Amortization expense	(100)	$ (100)	(210)	$ (200)
Other intangibles, at end	$ 431		$ 431

XML

LEASES (Details 5) $ in Thousands	Dec. 31, 2018 USD ($)
Leases [Abstract]
2019	$ 305
2020	307
2021	307
2022	233
Total	$ 1,152

XML

LEASES (Details 1) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Leases [Abstract]
Fixed rent - Minimum lease revenue	$ 1,091	$ 0	$ 1,387	$ 0
Variable lease revenue	66	0	87	0
Total lease revenue	$ 1,157	$ 0	$ 1,474	$ 0

XML

INTANGIBLE ASSETS AND GOODWILL (Details 2) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 15,357	$ 15,357
Intangible assets and goodwill, gross	16,347	16,347
Amortizing intangible assets, accumulated amortization	(559)	(349)
Total	331
Intangible assets and goodwill, net	15,788	15,998
Trade name and other
Acquired Finite-Lived Intangible Assets [Line Items]
Amortizing intangible assets, gross	90	90
Amortizing intangible assets, accumulated amortization	(26)	(16)
Total	64	74
Customer relationships
Acquired Finite-Lived Intangible Assets [Line Items]
Amortizing intangible assets, gross	800	800
Amortizing intangible assets, accumulated amortization	(533)	(333)
Total	267	467
Liquor license
Acquired Finite-Lived Intangible Assets [Line Items]
Non-amortizing intangible assets	$ 100	$ 100

XML

LEASES (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lessor, Operating Lease Disclosure

The following table presents minimum lease revenues and variable lease revenue for the three and nine months ended September 30, 2019 (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease revenue
Fixed rent - Minimum lease revenue	$	1,091	$	—	$	1,387	$	—
Variable lease revenue	66		—		87		—
Total lease revenue	$	1,157	$	—	$	1,474	$	—

Lessor, Future Lease Payments

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands).

Years ending	Amount
Remainder of 2019	$	870
2020	3,744
2021	3,796
2022	3,416
2023	2,306
Thereafter	3,639
Total	$	17,771

Components of Lease Expense

Supplemental cash flow information related to leases for the nine months ended September 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	321
Non-cash investing and financing activities:
Right-of-use assets and lease liabilities recorded upon adoption of ASC 842
Right-of-use assets	$	1,574
Lease liabilities	$	1,693

Supplemental balance sheet information related to leases as of September 30, 2019 was as follows (thousands, except lease term and discount rate):

Operating leases
Operating lease right-of-use assets in other assets	$	1,330
Operating lease liabilities in accounts payable and other accrued expenses	$	1,431
Weighted average remaining lease term	2.8 years
Operating leases - Weighted average discount rate	7.1%

Lessee, Future Lease Payments

The following represents future payments on operating leases as of September 30, 2019 (in thousands):

Years ending	Amount
Remainder of 2019	$	214
2020	574
2021	575
2022	237
Total lease payments	1,600
Less imputed interest	(169		)
Total	$	1,431

Lessee, Future Minimum Lease Payments

As of December 31, 2018, future minimum lease payments required under these various lease agreements are as follows (in thousands):

Years ending	Amount
2019	$	305
2020	307
2021	307
2022	233
Total	$	1,152

XML

REVENUE (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disaggregation of Revenue [Line Items]
Revenue	$ 4,551	$ 2,826	$ 8,119	$ 8,052
Commercial real estate rental revenue
Disaggregation of Revenue [Line Items]
Revenue	1,157	0	1,474	0
Rooms
Disaggregation of Revenue [Line Items]
Revenue	1,498	1,311	2,456	3,207
Food and beverage
Disaggregation of Revenue [Line Items]
Revenue	800	314	1,339	1,440
Banquet
Disaggregation of Revenue [Line Items]
Revenue	343	175	373	333
Spa and fitness center
Disaggregation of Revenue [Line Items]
Revenue	166	194	378	522
Other
Disaggregation of Revenue [Line Items]
Revenue	118	91	175	251
Total operating property revenue
Disaggregation of Revenue [Line Items]
Revenue	4,082	2,085	6,195	5,753
Mortgage loan income, net
Disaggregation of Revenue [Line Items]
Revenue	340	709	1,438	1,976
Management fees, investment and other income
Disaggregation of Revenue [Line Items]
Revenue	$ 129	$ 32	$ 486	$ 323

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Details) - Interest Rate Cap - Designated as Hedging Instrument - Cash Flow Hedging - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount		$ 36,000,000
Cap interest rate		2.20%
Fair value of derivative	$ 0

XML

SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision makers in deciding how to allocate resources and in assessing performance.

The information presented in our reportable segments tables that follow are based in part on internal allocations which involve management judgment. Substantially all revenues recorded are from external customers. There is no material intersegment activity.

As of and for the three and nine months ended September 30, 2019 and 2018, the Company’s reportable segments consisted of the following:

Hospitality and Entertainment Operations — Consists of revenues and direct operating expenses, depreciation and amortization relating to our hotel, spa, and food & beverage operations. This segment also reflects the carrying value of such assets and the related financing and operating obligations.

Mortgage and REO - Legacy Portfolio and Other Operations — Consists of the collection, workout and sale of new and legacy loans and REO assets, including financing of such asset sales, as well as the operating expenses (if any), carrying costs and other related expenses of such assets. This segment also includes operating properties that do not represent a strategic operating objective of the Company, such as Broadway Tower, and their rental revenue and tenant recoveries less direct property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses), depreciation and amortization from commercial real estate leasing operations, and the carrying value of such assets and the related financing and operating obligations.

Corporate and Other — Consists of our centralized general and administrative and corporate treasury activities. This segment also includes reclassifications and eliminations between the reportable operating segments and reflects the carrying value of corporate fixed assets and the related financing and operating obligations.

Condensed consolidated financial information for our reportable operating segments as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 is summarized as follows (in thousands):

	September 30,		December 31,
Balance Sheet Items	2019		2018
Total Assets
Mortgage and REO Legacy portfolio and other operations	$	80,986	$	67,658
Hospitality and entertainment operations	66,931		52,753
Corporate and other	4,642		23,228
Consolidated total	$	152,559	$	143,639
	Nine Months Ended September 30,
Cash Flow Items	2019		2018
Expenditures for additions to long-lived assets
Mortgage and REO Legacy portfolio and other operations	$	1,071	$	2,321
Hospitality and entertainment operations	12,288		4,887
Corporate and other	23		23
Consolidated total	$	13,382	$	7,231

	Three Months Ended September 30, 2019
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	1,157		$	2,925		$	—		$	4,082
Mortgage loan income	340			—			—			340
Management fees, investment and other income	6			—			123			129
Total revenue	1,503			2,925			123			4,551
Total operating expenses	1,863			5,136			2,730			9,729
Other (income) expense
Gain on disposal of assets	(223		)	—			—			(223		)
Provision for (recovery of) credit losses, net	2,598			—			—			2,598
Unrealized loss on derivatives	—			39			—			39
Total other (income) expense	2,375			39			—			2,414
Total costs and expense, net	4,238			5,175			2,730			12,143
Loss before income taxes	(2,735		)	(2,250		)	(2,607		)	(7,592		)
Provision for income taxes	—			—			—			—
Net loss	$	(2,735	)	$	(2,250	)	$	(2,607	)	$	(7,592	)

	Three Months Ended September 30, 2018
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	—		$	2,085		$	—		$	2,085
Mortgage loan income	709			—			—			709
Management fees, investment and other income	—			—			32			32
Total revenue	709			2,085			32			2,826
Total operating expenses	843			3,228			2,413			6,484
Other (income) expense
Gain on disposal of assets, net	(3,543		)	—			—			(3,543		)
Total other income	(3,543		)	—			—			(3,543		)
Total costs and expense, net	(2,700		)	3,228			2,413			2,941
Income (loss) before income taxes	3,409			(1,143		)	(2,381		)	(115		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	3,409		$	(1,143	)	$	(2,381	)	$	(115	)

	Nine Months Ended September 30, 2019
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	1,474		$	4,721		$	—		$	6,195
Mortgage loan income	1,438			—			—			1,438
Management fees, investment and other income	92			—			394			486
Total revenues	3,004			4,721			394			8,119
Total operating expenses	3,538			12,453			7,252			23,243
Other (income) expense
Gain on Disposal of Assets, Net	(244		)	—			—			(244		)
Provision for (recovery of) credit losses, net	1,463			—			—			1,463
Unrealized loss on derivatives	—			330			—			330
Total other (income) expense	1,219			330			—			1,549
Total costs and expense, net	4,757			12,783			7,252			24,792
Loss before income taxes	(1,753		)	(8,062		)	(6,858		)	(16,673		)
Provision for income taxes	—			—			—			—
Net loss	$	(1,753	)	$	(8,062	)	$	(6,858	)	$	(16,673	)

	Nine Months Ended September 30, 2018
Income Statement Items	Mortgage and REO Legacy Portfolio and Other Operations			Hospitality and Entertainment Operations			Corporate and Other			Consolidated
Revenues
Operating property revenue	$	—		$	5,753		$	—		$	5,753
Mortgage loan income	1,976			—			—			1,976
Management fees, investment and other income	2			240			81			323
Total revenue	1,978			5,993			81			8,052
Total operating expenses	2,256			9,440			6,877			18,573
Other (income) expense
Gain on disposal of assets, net	(3,938		)	—			—			(3,938		)
Provision for (recovery of) credit losses, net	(175		)	—			—			(175		)
Total other income	(4,113		)	—			—			(4,113		)
Total costs and expense, net	(1,857		)	9,440			6,877			14,460
Income (loss) before income taxes	3,835			(3,447		)	(6,796		)	(6,408		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	3,835		$	(3,447	)	$	(6,796	)	$	(6,408	)

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VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES

VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES

Variable Interest Entities

As of September 30, 2019 and December 31, 2018, we consolidated multiple variable interest entities (“VIE’s”) relating to two primary projects: 1) various partnerships which own land and water rights located in New Mexico for which the Company retains both general partner and limited partner interests, and 2) the Hotel Fund, for which the Company is the sponsor and its subsidiary is the common member, that owns an MacArthur Place. We are deemed to be the primary beneficiaries of these consolidated VIE’s as we have the power to direct the activities that most significantly affect their economic performance and we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our consolidated VIE’s are only available to settle the obligations of the respective entities.

The following table summarizes the carrying amounts of the above referenced entities’ assets and liabilities included in the Company’s condensed consolidated balance sheets at September 30, 2019 and December 31, 2018, net of intercompany eliminations (in thousands):

	September 30, 2019		December 31, 2018
Total assets	$	100,143	$	85,240
Total liabilities	58,205		37,770

The following table summarizes the VIE’s results of operations for the three and nine months ended September 30, 2019 and 2018, net of intercompany eliminations (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(393	)	$	(262	)	$	(6,433	)	$	(786	)

The Company’s maximum exposure to loss from the operations of these VIE’s consists of its combined equity in those entities which totaled $26.4 million as of September 30, 2019. The Hotel Fund makes a preferred distribution, payable monthly accruing at a rate of 7.0% per annum on invested capital, cumulative and non-compounding (the “Preferred Distribution”). Preferred Distributions totaled $0.4 million and $1.0 million during the three and nine months ended September 30, 2019, respectively, and $0.1 million and $0.2 million during the three and nine months ended September 30, 2018, respectively.

Investment in Unconsolidated Entities

While the Company had not originated any new loans on its own behalf during 2019, during the three months ended September 30, 2019, the Company entered into an investment agreement withJuniper Bishops, LLC (a related party of a preferred shareholder and director of the Company)to participate in a $15.0 million mezzanine loan to a unrelated hotel owner and operator for the renovation of a luxury resort located in Sante Fe, New Mexico.  The mezzanine loan is secondary to a senior mortgage loan funded by an unrelated party.  The Company’s total commitment under this investment is $3.9 million, of which $2.6 million was funded as of September 30, 2019 and is reflected in “Investment in unconsolidated entities” in the accompanying condensed consolidated balance sheet. The Company funded $1.0 million of its remaining commitment subsequent to September 30, 2019.